Tesla reported its second consecutive quarterly profit last night (30 January) and better than expected sales but its fourth quarter earnings fell short of analysts' expectations and sent its shares down after the markets closed.
CEO Elon Musk also announced a major change to the electric carmaker's executive ranks with the retirement of long-time chief financial officer Deepak Ahuja, cnbc.com reported.
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Ahuja is being replaced by Zach Kirkhorn, previously the company's vice president of finance, Musk told analysts at the end of a conference call announcing the results.
cnbc.com said the electric car maker's results and outlook for 2019 were not as bad as some had feared but the automotive segment, which still comprises the majority of Tesla's business, was less profitable than some had expected. This is Tesla's fourth profitable quarter overall since it went public in 2010, and the first time Tesla has reported back-to-back profitable results. Musk said last year that he expected Tesla to be sustainably profitable beginning in the third quarter of 2018.
Earnings were hit on a number of fronts, the company said, citing a decline in revenue from the sale of regulatory credits, higher import duties on parts from China as well as lower prices on the Model S and Model X in China and a lower-priced mid range version of the Model 3.
"Last year was definitely the most challenging year in Tesla history, but also the most successful," Musk told analysts on a conference call, cnbc.com reported.
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By GlobalDataExecutives said the company's main priorities in 2019 include reducing costs, shipping as many cars as possible until more tariffs hit, getting Tesla's Shanghai factory running and improving service in North America.
"This release was a mixed bag," CFRA analyst Garrett Nelson told CNBC. "The company generated strong free cash flow, which should ease balance sheet-related concerns, which is the biggest positive from this release in our view. Vehicle sales guidance for 2019 was a bit short of expectations, but not nearly the doomsday scenario some had expected resulting from the federal EV credit step-down."
Adjusted EPS was US $1.93 versus $2.20, according to average estimates compiled by Refinitiv. Revenue was $7.23bn versus $7.08bn, according to average estimates compiled by Refinitiv
On an unadjusted basis, Tesla made $139.5m, or 78 cents a share, compared with a loss of $675.4m, or $4.01 a share, during the last quarter of 2017. It generated $7.23bn in total revenue, more than double its $3.29bn in revenue during the same quarter in 2017. It also beat analysts' average sales estimates of $7.08bn.
The company should see higher revenues in 2019 as it substantially ramps up production and deliveries this year, aiming for 360,000 to 400,000 vehicle deliveries, about 45 to 65% more than its deliveries in 2018, cnbc.com said. Musk predicted its deliveries will grow 50% in 2019, "even if there's a recession".
The federal tax credit on every Tesla vehicle sold was cut in half to $3,750 at the beginning of the year, after Tesla sold its allotted 200,000 units that qualified for the full credit, the report noted.
"That 360,000 to 400,000 vehicles is within the band of what the street was expecting, and I think there were fears that would be significantly worse given what we saw in North America with the EV tax credit," Wedbush analyst Dan Ives told CNBC.
Jessica Caldwell, Edmunds' executive director of industry analysis, saw a tough year ahead for Tesla.
"Things really aren't going to get any better for Tesla in the US than they did at the end of 2018," she told CNBC. "Turning a profit, creatively addressing production challenges and getting the Model 3 to the masses were huge milestones, but keeping up this momentum is going to be virtually impossible."
She said its product line is starting to get stale and it faces new competition from Audi, Porsche and Jaguar.
"Tesla's in an awkward purgatory between being a start-up and a mainstream automaker, and the biggest open question heading into 2019 is where the company really goes from here," Caldwell said. "Tesla is used to owning the spotlight, but for the next year we might see a lower-key Tesla as the company takes baby steps to keep things moving along while it plans for the future."
Industry watchers are eyeing if Tesla needs to raise any more capital in the short term, especially given the fact that it needs to pay off $920m in debt due 1 March. Bondholders can convert the debt into equity if the shares trade at or above the strike price of $359.87. But below that price, Tesla would likely have to pay off the notes with cash.
The company assured investors it has "sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019", cnbc.com said.
Michelle Krebs, executive analyst, Autotrader, said: "Tesla's fourth quarter and full year 2018 financial results illustrate the steep financial challenges the company faces. And also the conundrum that is the Tesla brand. According to data from Kelley Blue Book's Brand Watch, a perception tracking study, the Tesla brand continues to be pure gold. Among its luxury competitors, Tesla ranks tops in consumer perception in eight of 12 key factors. In some cases, it ranks #1 by a wide margin, particularly in fuel efficiency as well as prestige, reputation and technology. In contrast to some of its luxury competitors, consumer perception of Tesla has improved in almost every category since 2015.
"At the end of the day, it's the two realities of Tesla that many analysts struggle with: A company that continues to be a darling among luxury shoppers and an absolute laggard in financial measure."
