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Tesla's path to profitability looks shakier than ever. Here's what Wall Street had to say about the company's disastrous quarter.
Tesla's path to profitability looks shakier than ever. Here's what Wall Street had to say about the company's disastrous quarter.
Daniel StraussJul 25, 2019, 20:08 IST
Kyle Grillot/Reuters
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Share's of Tesla plummeted as much as 15% on Thursday after the electric-car manufacturer reported second-quarter earnings that missed Wall Street expectations.
Tesla reported a bigger loss than analysts predicted, reigniting concerns about the company's ability to turn a profit.
The company also announced the departure of Chief Technology Officer JB Straubel during its earnings call on Wednesday.
Here's what Wall Street analysts are saying about Tesla's difficult road to profitability.
Tesla's stock plummeted as much as 15% on Thursday after the company posted second-quarter earnings that failed to meet Wall Street forecasts. The losses wiped out more than $7 billion in market value.
Investors are becoming increasingly concerned about the electric automaker's path to profitability, despite posting record production and delivery numbers for the quarter ending in June.
Here are the key estimates Tesla missed:
Earnings per share: -$1.12 compared to -$0.31 expected
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Revenue: $6.35 billion compared to $6.45 billion expected
Gross automative margins, a key metric for Tesla, were about 19% in the second quarter, beating estimates of around 17%. The company said the Model 3's average selling price remained stable at $50,000, and reiterated its goal to return to profitability next quarter.
"We believe Tesla has - is now at the point of being self-funding, and we expect to be cash flow - free cash flow positive in future quarters with the possible temporary exceptions around the launch and ramp of new products," Tesla CEO Elon Musk said on the company's earnings call.
He added: "From a profitability standpoint, we expect to be probably around breakeven this quarter and profitable next quarter."
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Tesla also revealed another executive shakeup during its earnings call: Chief Technology Officer JB Straubel will be transitioning to an advisory role. Drew Baglino, the vice president of technology, will replace Straubel. In early July, Tesla's vice president of interior and exterior engineering, Steve MacManus, left the company as well.
Here's what Wall Street is saying about Tesla's challenging road ahead:
Goldman Sachs: 'Altogether we expect downward pressure on TSLA shares resulting from the top and bottom line miss.'
Price Target: $158
Rating: Sell
"Automotive gross margins were well below expectations (approx. 18.9% vs. GSe 19.8% and consensus of 20.5%) — and were the key metric investors were focused on into the print given the record amount of deliveries," David Tamberrino, an analyst, said in a research note to clients on Thursday.
He continued: "We believe this will weigh on shares as investors question the company's ability to maintain vehicle profitability while increasing demand — which is still an area for debate."
JPMorgan: 'Management sounded less committal than prior on the ability to be profitable in all subsequent quarters.'
Price target: $200
Rating: Underweight
"Similar to on the 4Q18 earnings conference call in January when it was unexpectedly announced that long-time CFO Deepak Ahuja would be departing the company, it was announced yesterday that long-time CTO J.B. Straubel would also depart," a team of analysts led by Ryan Brinkman said in a note to clients on Thursday.
He added: "We suspect investors will view the departure of Mr. Straubel as concerning because he had been — along with Mr. Ahuja — to our knowledge the only remaining senior executive besides Mr. Musk that had been with Tesla virtually from the beginning, suggesting he may have served as an important counsel and check against seemingly unilateral decision-making."
Wedbush: 'We continue to believe that the reiteration of 360k to 400k unit guidance for FY19 was a head scratcher.'
Price target: Lowered to $220, from $230
Rating: Neutral
"While demand showed an impressive bounce back this quarter and the company is seeing strong order activity for 3Q, we continue to believe that the reiteration of 360k to 400k unit guidance for FY19 was a head scratcher since the pure math and demand trajectory makes this an Everest-like uphill battle," the analyst Daniel Ives said in a research note to clients on Thursday.
Credit Suisse: 'One of the core challenges will be for Tesla to improve its gross margin profile.'
Price Target: $189
Rating: Underperform
"For Tesla to be more than niche, one of the core challenges will be for Tesla to improve its gross margin profile. The 2Q print showed us that while the Tesla's growth outlook is unchanged, there are nevertheless challenges along the way," Dan Levy, an analyst, said in a research report to clients on Thursday.
Oppenheimer: 'We believe the ongoing management turnover remains a growing concern for investors.'
Price target: Lowered to $356, from $457
Rating: Outperform
"As we lower estimates and our PT, we increasingly believe the success of TSLA both medium- and long-term is dependent on its ability to drive cost out of its battery pack and optimize range to support gross profit per vehicle and volume of sales," Colin Rusch, an analyst, said in a note to clients on Thursday.
