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3 May 2019

Tesla’s numbers show shoddy management, weak prediction, big loss

Tesla’s unconventional way of carrying out business continues to baffle the more traditional among us, who prefer to see things like the company actually meeting its forecasts, or at the very least not making further projections that it clearly cannot meet – old fashioned we know, but there it is.

Revenues for the quarter were not awful, and mostly car related, $4.54 billion with $3.7 billion coming from its vehicles business, up $1 billion from this time last year, and just $324 million on energy generation and storage, down from $410 million this time last year.

The solar business is not broken out in detail but the company deployed just 47 MW in Q1, down from 73 MW this time last year, the lowest since it acquired SolarCity in late 2016. This may be either because it has cut the conventional sales channel and wants to only sell online, or because customers want a Powerwall battery as well and there is a backlog because they are all going into the cars.

Reading between the lines, the Model 3 car took up all the batteries, and yet still did not deliver as many cars as Tesla’s CEO Elon Musk forecast, and now it is in the position where it has a huge 400,000 car target for the year, alongside public statements of pure optimism that the company’s Chinese Gigafactory “may” come online within 2019 and possibly contribute another 100,000 cars. The company only made 63,000 Model 3 vehicles in Q1, up only 3% on the prior quarter, and nothing like the hoped for 100,000 average.

Solar is clearly a much more compelling proposition when accompanied by battery storage – the sun shines during the day when everyone is out, and the battery fills up to be used at night, when everyone is in –  so if you starve the energy business of batteries, then nothing else will sell. The company also decided that because of this, it would be a waste of time spending any money on marketing for solar, so cut that too. Next quarter Tesla says that it will have 30% better production on batteries, but won’t they all end up in the delayed car orders? It also stuck with its previous guidance of delivering between 360,000 to 400,000 vehicles in 2019. We leave you to imagine how realistic this is.

The company was so caught up in demonstrations of self-driving cars, and having an EV that is cheaper than the combustion engine equivalent, that it cannot see how nervous it is making investors.

The overall result is a backlog of car orders, storage backed up and solar dying, and revenues way below forecast, and margins little better than a year ago and a big fat loss of $702 million for the quarter, and a cash position about $1.5 billion less at $2.2 billion, than a year ago. At least the cash position is about paying down debt, not merely out of control spending.

We have always thought the key to success at Tesla is to sell a single package of a car, plus car battery, plus a battery for the home, plus solar – all on a single financial deal, one that is financed off its balance sheet, by one of the major US corporations like GE. But it has not looked like going down that route yet.

Elon Musk said at the conference that because there are fewer cells in a Powerpack or Powerwall, the release of batteries from the car business meant that it could now grow in the order of 300% for the rest of the year. Or is that another optimistic forecast that will come back to bite him?

Tesla insisted it could still complete the deal to purchase Maxwell Technologies and that it was on track for mid-May, and that in the same month, an insurance product would “simplify the owner experience” and “take into account safety of driving on Autopilot?”

Meanwhile there is a new report out this week from Wintergreen Research which says the global EV market will growth from just $39.8 billion in 2018 to $1.5 trillion by 2025, topping out with almost 100 million such cars by 2025 and an annual run rate accelerating from 2.7 million a year now to 11 million a year by 2020.

It suggests that 36% of the cars on the road will be electric by 2025 and names Tesla as one of the industry leaders, both now and in the future – not with a business run so raggedly, with poor forecasting and market anticipation. Chances are someone will be forced to buy it to prevent it running out of cash.