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Shares of Tesla (TSLA - Free Report) plummeted Monday following a report that the electric car company is seeking refunds from suppliers, dating back as far as 2016, in order to help it sustain operations and become profitable. The somewhat unprecedented move highlights why many investors have grown more skeptical about Tesla. So now the question is should investors run away from Tesla stock?
Refunds
Tesla reached out to multiple suppliers for cash refunds on what the company refers to as a meaningful amount of money, according to a memo reviewed by The Wall Street Journal. Tesla sent a memo to suppliers last week asking for price reductions on projects, some of which go all the way back to 2016.
Tesla noted that the refunds are essential to its continued operations. The company also said that the payments would be viewed as a type of investment in Tesla in order to remain on track for long-term growth not only for the electric car company but for its suppliers as well. “It’s simply ludicrous and it just shows that Tesla is desperate right now,” veteran manufacturing consultant Dennis Virag told the WSJ. “They’re worried about their profitability but they don’t care about their suppliers’ profitability.”
Tesla is clearly looking to raise more money as it tries to reach its self-imposed production and profitability deadlines. Elon Musk has said he wants to avoid raising any additional money, while also becoming cash-flow positive. Furthermore, Tesla’s outspoken CEO expects the company to turn a profit in the second half of the year.
Most analysts simply don’t agree with Musk and have said Tesla will likely have to raise more money. Tesla is currently spending about $1 billion a quarter and posted its fifth consecutive quarter of record losses in Q1. The refund requests also follow Tesla’s announcement that it will cut 3,600 jobs, or roughly 9% of its workforce.
Model 3 Production
Tesla announced on July 2 that it produced 5,031 Model 3 cars over the previous seven days, topping its 5,000 vehicle per week goal for the first time. In total, Tesla delivered 18,440 Model 3s, to help bring its Q2 total to 40,740 vehicles. The company also reaffirmed its target of 100,000 Model S and Model X deliveries in 2019 and said it expects to up its Model 3 production rate to 6,000.
With that said, skepticism has grown about Tesla’s Model 3 production, with suggestions that the company reallocated resources and employees in a rush to meet its own Model 3 production goals.
Shares of Tesla are down over 12% over the last six months as more investors begin to question not only the company’s short-term goals but also its long-term outlook. Tesla’s situation becomes even more worrisome when investors look at the push General Motors (GM - Free Report) , Volkswagen , Ford (F - Free Report) , Toyota (TM - Free Report) , and other more established automakers have begun to make towards their own electric futures.
Bottom Line
Looking ahead, our current Zacks Consensus Estimates are calling for Tesla’s Q2 revenues to climb by 38.4% to hit $3.86 billion. Tesla’s full-year revenues are expected to reach $18.41 billion, which would mark a roughly 57% surge from fiscal 2017.
However, at the other end of the income statement, Tesla is projected to report an adjusted second-quarter loss of $2.71 per share, which is much larger than the $1.33 per share loss the company posted a year ago. Meanwhile, Tesla is expected to report a full-year loss of $8.30 per share.
Investors should also note that Tesla’s Q2 and full-year earnings estimate revision activity has trended in the wrong direction over the last 60 days, which helped the company earn a Zacks Rank #3 (Hold). Therefore, investors might want to monitor TSLA until it proves it can become more stable.
Looking for Stocks with Skyrocketing Upside?
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Image: Bigstock
Should Investors Avoid Tesla (TSLA) Stock?
Shares of Tesla (TSLA - Free Report) plummeted Monday following a report that the electric car company is seeking refunds from suppliers, dating back as far as 2016, in order to help it sustain operations and become profitable. The somewhat unprecedented move highlights why many investors have grown more skeptical about Tesla. So now the question is should investors run away from Tesla stock?
Refunds
Tesla reached out to multiple suppliers for cash refunds on what the company refers to as a meaningful amount of money, according to a memo reviewed by The Wall Street Journal. Tesla sent a memo to suppliers last week asking for price reductions on projects, some of which go all the way back to 2016.
Tesla noted that the refunds are essential to its continued operations. The company also said that the payments would be viewed as a type of investment in Tesla in order to remain on track for long-term growth not only for the electric car company but for its suppliers as well. “It’s simply ludicrous and it just shows that Tesla is desperate right now,” veteran manufacturing consultant Dennis Virag told the WSJ. “They’re worried about their profitability but they don’t care about their suppliers’ profitability.”
Tesla is clearly looking to raise more money as it tries to reach its self-imposed production and profitability deadlines. Elon Musk has said he wants to avoid raising any additional money, while also becoming cash-flow positive. Furthermore, Tesla’s outspoken CEO expects the company to turn a profit in the second half of the year.
Most analysts simply don’t agree with Musk and have said Tesla will likely have to raise more money. Tesla is currently spending about $1 billion a quarter and posted its fifth consecutive quarter of record losses in Q1. The refund requests also follow Tesla’s announcement that it will cut 3,600 jobs, or roughly 9% of its workforce.
Model 3 Production
Tesla announced on July 2 that it produced 5,031 Model 3 cars over the previous seven days, topping its 5,000 vehicle per week goal for the first time. In total, Tesla delivered 18,440 Model 3s, to help bring its Q2 total to 40,740 vehicles. The company also reaffirmed its target of 100,000 Model S and Model X deliveries in 2019 and said it expects to up its Model 3 production rate to 6,000.
With that said, skepticism has grown about Tesla’s Model 3 production, with suggestions that the company reallocated resources and employees in a rush to meet its own Model 3 production goals.
Shares of Tesla are down over 12% over the last six months as more investors begin to question not only the company’s short-term goals but also its long-term outlook. Tesla’s situation becomes even more worrisome when investors look at the push General Motors (GM - Free Report) , Volkswagen , Ford (F - Free Report) , Toyota (TM - Free Report) , and other more established automakers have begun to make towards their own electric futures.
Bottom Line
Looking ahead, our current Zacks Consensus Estimates are calling for Tesla’s Q2 revenues to climb by 38.4% to hit $3.86 billion. Tesla’s full-year revenues are expected to reach $18.41 billion, which would mark a roughly 57% surge from fiscal 2017.
However, at the other end of the income statement, Tesla is projected to report an adjusted second-quarter loss of $2.71 per share, which is much larger than the $1.33 per share loss the company posted a year ago. Meanwhile, Tesla is expected to report a full-year loss of $8.30 per share.
Investors should also note that Tesla’s Q2 and full-year earnings estimate revision activity has trended in the wrong direction over the last 60 days, which helped the company earn a Zacks Rank #3 (Hold). Therefore, investors might want to monitor TSLA until it proves it can become more stable.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>