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Here's Why Tesla (TSLA) Stock Is Down 5% Today

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Shares of Tesla (TSLA - Free Report) were down more than 5% in morning trading Thursday after the company posted a wider-than-expected fourth quarter loss. Despite Elon Musk’s assurance that his company’s affordable Model 3 sedan is still on schedule, investors are remaining cautious about several other key things that Tesla revealed on Wednesday afternoon.

Earnings Performance

For the fourth quarter of fiscal 2016, Tesla posted an adjusted loss of $1.25 per share, missing our estimate of a loss of $1.19 per share. Nevertheless, this figure was significantly improved from the year-ago quarter’s loss of $2.44 per share.

Tesla said that it delivered 22,252 cars in the quarter, which was down 10% from the third quarter but up about 27% year-over-year. The company saw 49% more global net orders for the Model S and Model X combined, and it expects to deliver between 47,000 and 50,000 of these cars in the first half of 2017. This would represent year-over-year growth of 61% to 71%, giving Tesla some strong momentum as it begins production on the Model 3 in July.

(Also Read: Tesla Posts Strong Revenues Despite Q4 Loss, Global Net Orders Up 49%)

Tesla also posted strong revenues, with fourth-quarter sales figures of $2.28 billion comfortably beating our consensus estimate of $2.201 billion and growing 88.4% year-over-year. The company benefitted from about six weeks of revenue from SolarCity, a solar energy services company is acquired in November.

The Good, The Bad, The Ugly

Although Tesla’s earnings inconsistency continues, its revenue beat and vehicle sales growth should be encouraging. The more optimistic Tesla investors will also cling to Elon Musk’s latest updates regarding the production of the Model 3.

As mentioned above, the Model 3 is slated to begin production in July, and the $35,000 car is expected to help move Tesla into a wider market that targets the average driver. Musk expects to make about half a million cars in 2018, and his expectations are based on the idea that improvements in manufacturing will help his company reach that goal.

“The Model 3 is designed for manufacturing,” Musk said. “It’s a very compelling car, and we understand manufacturing a lot better than we did in the past.”

Of course, not everything was rainbows and butterflies for this Zacks Rank #4 (Sell) company. Besides its earnings miss, investors are also punishing Tesla for its increased capital expenditures related to the Model 3.

Musk did mention that the company does not actually need to raise more capital for the Model 3, but he did admit that things were “very close to the edge” and “it probably makes sense to raise capital to reduce the risk.”

Investors are obviously hesitant about any new spending from Tesla, which seems to be perpetually burning cash on its new projects. The company also put some more uncertainty in the air with a separate announcement about a big changeup in management.

According to a company blog post, Tesla CFO Jason Wheeler will be departing the company in April. Tesla said that Wheeler, who joined the company about 15 months ago, is leaving to pursue opportunities in public policy.

Wheeler will be replaced by Deepak Ahuja, Tesla’s first ever CFO and a former Ford (F - Free Report) vehicle line controller. Ahuja already has about seven years of experience at Tesla, having maneuvered the company away from near bankruptcy in 2008.

Bottom Line

Long story short, I don’t think we know much more about Tesla than we did before the release of the report. Sure, Musk reassured us that the Model 3 is on schedule, but investors have learned to take his time-based promises with a grain of salt.

The big picture for Tesla is still the same. The company has the potential to change the world. But it burns lots of cash and profits seem a long way out.

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