Tesla's Musk 'sees merit' in capital raise, vows profit in Q3 after large loss

Tesla Inc Chief Executive Elon Musk suggested on April 24, a capital raise could be imminent, as the electric vehicle maker lost USD 700 million in the first quarter and predicted a return to profit in the third.

Tesla plans to resolve logistics issues with global vehicle deliveries after weathering a challenging few months, also marked by staff layoffs and a public spat between Musk and US financial regulators.

Shares of Tesla, which are down 22 per cent this year, were about flat after the results, which came more than an hour after they were expected.

Musk is still battling to convince investors that demand for the Model 3, the sedan hoped to propel Tesla to sustainable profit, is “insanely” high and that it can be delivered efficiently and swiftly to customers around the world. Lower deliveries had added to worries over Tesla’s cash situation and increased speculation a capital raise was coming soon. On a call following results, Musk also stepped back from an earlier prediction that the company’s Shanghai factory, which is currently being built, would likely produce 3,000 Model 3s per week by year’s end. Instead, the so-called Gigafactory would build 1,000, or maybe 2,000 per week by the end of the year, he said.

Many analysts had predicted the company would need to raise funds for its expansion, including the Shanghai factory, the upcoming Model Y SUV, and other projects. Tesla said it ended its first quarter with USD 2.2 billion in cash after paying off a USD 920 million convertible bond obligation in March.

“There is some merit to raising capital,” responded Musk, after being asked why he had not done so yet. “It’s probably about the right time.”

The company stood by its 2019 delivery forecast of 360,000 to 400,000 vehicles and said it may produce as many as 500,000 vehicles if its China factory reaches volume production in the fourth quarter. Tesla said a loss in its second quarter would be “significantly” less than the USD 702 million lost in the first quarter. Profit would return in the third quarter, Tesla said.

Haris Anwar, a senior analyst a financial markets platform Investing.com, called guidance for the second quarter “bleak”. “I continue to see a very volatile 2019 for Tesla and its shares,” Anwar said. Tesla’s results came two days after the company hosted a self-driving event, in which Musk predicted Tesla would have over a million autonomous vehicles by next year. Some analysts perceived the presentation as a way to deflect attention from questions about demand, margin pressure, increasing competition and even Musk’s ongoing battle with US regulators.

On April 25, Musk and the US Securities and Exchange Commission are expected to tell a federal judge the status of discussions to resolve their dispute over Musk’s Twitter use. Heightening uncertainty during the quarter were logistics bottlenecks at international ports, price adjustments on vehicles and a surprise announcement, later reversed, to close most of Tesla’s stores in order to financially offset the introduction of the USD 35,000 Model 3.

On April 24, Tesla said it planned to deliver 90,000 to 100,000 vehicles to customers in the second quarter, versus 63,000 vehicles in the first.

Musk said that Tesla would change the costly and inefficient way it was building cars, in which it produced for international markets at the start of each quarter - to leave time for longer transport - then built for North America later. A better production blend would be less taxing on the company, Musk said.

The gross profit margin on the Model 3 - a focus for investors - remained relatively steady at 20 per cent.

Tesla also announced it would start offering its own insurance product in about a month to better reflect the safety of its vehicles. Tesla reported a net loss attributable to common shareholders of USD 702.1 million, or USD 4.10 per share, in the first quarter ended March 31, compared with a loss of USD 709.6 million, or USD 4.19 per share, a year earlier.

Excluding some items, Tesla lost USD 1.77 per share, compared with Wall Street expectations of a loss of 69 cents, according to data from Refinitiv.

Shares fell less than a per cent to USD 258 in after-hours trade.