As an, uneventful by recent standards, Tesla (NASDAQ - TSLA) quarterly earnings call came to an end, Elon Musk came up with the following, as if it were an afterthought; “Um yeah…the um….Deepak is going to be retiring from Tesla”. Naturally, the market responded badly to both the news that Deepak Ahuja, the CFO, was leaving – the latest of a long line of senior departures, as well as the manner in which it was broadcast. Nor did news of his replacement, 34-year-old Zach Kirkhorn, a relatively junior member of the Tesla staff whose surname Musk appeared to have forgotten, seem to go down very well. It was this which grabbed the headlines but otherwise the call did little to shift the entrenched positions of bulls or bears...
For the bulls there was comfort from operating cashflow of $1.2 billion and an increase in cash to $3.7 billion suggesting that the $900 million convertible debt can be paid in cash with something to spare in March, as it needs to be, if as now seems likely, the stock trades then below $360. Then there were Musk’s assurances that a factory in China, financed by cheap local bank debt, would be built and producing 3,000 model 3s per week by the end of this year. The bears point out that the Q4 interest received implies that the average cash for the period was significantly lower than at the period end. Furthermore capex has been cut to the bone, which suggests liquidity concerns and is certainly not consistent with a growth company. As for Musk’s China forecast, it seems to be yet another example of wishful thinking which ends up unfulfilled.
Amid all the conflicting noise investors should concentrate on the fact that Q4 net income was half of that of Q3 (and 2/3rds of that was made up of Greenhouse Gas credits which will not apply in Europe which is, with China, the all important market as demand in the US softens rapidly). Q1 is forecast at around break-even and the Q4 run rate looks to remain static implying a p/e of more than 50 for a business which has already peaked. The bear case has always been that Tesla cannot turn a profit by mass-producing cars at affordable prices (the much vaunted and never achieved $35k) and can be best summed up by the following absurdity from Musk;
“The demand for model 3 is insanely high. It’s just like people literally don’t have the money to buy the car. It’s got nothing to do with desire. They just don’t have enough money in their bank account. If the car can be made more affordable the demand is extraordinary.” Well thanks for that Elon. You’ve got it in a nutshell. The shares are a sell.
Filed under: Tesla, TSLA, Maestrano, IQE, AMS Ag, Dave Richards, Wandisco, Parity Group, BP, Lucian Miers
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