Times are not looking good for Tesla, America’s largest pure-electric vehicle maker. In its quarterly earnings report this week, the company revealed a staggering $702 million loss for the first quarter of 2019.
- Tesla Model S and X sales are down 56%
- The company paid off a $920 million bond
- Achieved $4.54 billion in revenue
- Posted $702 million first quarter loss for 2019
There are several reasons for Tesla’s earnings slump. Although it netted $4.54 billion in revenue, that figure was well below analyst predictions. It had to spend $920 million paying off a bond in the first quarter. An additional $420 million went to operation costs.
What’s more, the sales of all its models are off — way off. Deliveries of the Tesla Model S sedan and Model X SUV vehicles declined by by 56% during the quarter. Its solar sales are down 35%, too. In total, the EV maker reported 31% fewer sales in the first quarter of 2019 than it had in the fourth quarter of 2018. This, despite having slashed prices in February.
As a result of its disappointing sales, Tesla stock is now down 30% compared with its most recent high. Likely, Tesla will have to offer more stock in order to raise funds and refill its coffers.
Why are Tesla sales down? The brand blames the loss of its $7,500 federal tax credit for one. However, the problem might be bigger than that. I see two major factors.
First, there is a chance that would-be Tesla buyers are either choosing to purchase one of the many all-new electric cars from a traditional automaker, like Jaguar’s I-PACE or Audi’s e-tron quattro. That, or, because so many new luxury EVs will be hitting the market in the next 18 months, they’re simply holding off until they can compare a bunch of competitive models.
Or, perhaps more worryingly, we’re seeing a saturation of the early adopter market. By that I mean, virtually all the people who wanted to buy an EV simply because it’s an EV — and not because it’s the most prudent vehicle purchase — have already put an electric car in their driveway.
Average shoppers who just want a nice, affordable, reliable car who don’t care about electrification are not yet being swayed to choose an EV over a fossil fuel-burning car or truck. They’re still out buying a Toyota Camry or Ford F-150, not a Tesla — not even the $36,000 ‘entry-level’ Model 3.
I have a feeling it’s a combination of the two. The Model S and Model X aren’t new or sexy or exciting. Why would a buyer plunk down $120,000 on a sedan that has been around since 2012? If I were in that position, I’d probably wait for the new Audi.
The Future For Tesla
Honestly, I don’t see a really good path forward for Tesla. The Model Y was revealed earlier this year. But that’s not due until 2021 … at the soonest. And let’s not forget that the Model X was two years behind schedule. So, I’d be surprised if Tesla is able to build more than a handful of Model Y crossovers by the close of 2021.
CEO Elon Musk wants investors to think that the company will have a new revenue source through robotaxis next year, of which Musk predicts the company will have “over a million” on the road in 2020. Spoiler: It won’t.
So, what can Tesla do to turn things around? It can’t turn up production, because it’s building as many vehicles as it can already. And it can’t cut prices on the cars it’s already building, because it’s already losing money at its current pricing structure. And, as we discussed, any new exciting models are years off.
Essentially, it’s going to have to hunker down and hope A.) Investors are OK with losing a half a billion dollars every quarter for the foreseeable future. And B) Wait for the Model Y, second-generation Roadster, and the Semi truck can turn the company’s profits around.