Tesla is expected to report a small profit for the final quarter of 2018 but the automaker’s CEO is now signaling it may have some bad news for the current quarter.
The automaker delivered a solid surprise when it announced a $311.5 million profit for the third quarter of last year, well exceeding analysts’ expectation. CEO Musk earlier this month warned that the final three months of the year would bring a much smaller profit. While Wall Street has already digested that forecast, there are concerns about Musk’s latest advisory.
While Musk, on January 18th, suggested the company might still be able to deliver “a tiny profit… with great difficulty, effort and some luck” as it headed into 2019, his latest advisory suggests its luck may be running out, at least for now. With Musk warning of a “very difficult” road ahead, there’s a growing consensus the first quarter now will bring another dose of red ink.
That didn’t play well with investors on Monday, Tesla shares tumbling by .66% to close at $296.38. While that was a relatively modest downturn, the downturn has continued to accelerate in after-hours trading. And it only continues the slump it has suffered in recent weeks, shares down more than 14% since Tesla announced on January 18 it would eliminate 7% of its workforce.
(Click Here for more on Tesla’s plan to cut jobs.)
Complicating matters, Tesla also announced this month that it would slash $2,000 off the price of its various models to partially compensate for the phase-out of federal incentives that went into effect on January 1. After having crossed a 200,000-sales threshold, buyers will not get just $3,750 in tax credits through June 30, down from $7,500. As of July 1, that figure is halved again and the incentives will vanish entirely come January 1, 2020.
While the loss of the givebacks aren’t expected to have a major impact on Tesla’s older Models S and X, analysts worry about the mainstream buyers targeted with the automaker’s newer Model S. Complicating matters, sales during the fourth quarter still fell short of expectations, even though Musk and company aggressively hyped the soon-to-end availability of full federal incentives heading into the New Year.
The $2,000 price cut isn’t the only thing that could stress Tesla’s balance sheet. The poor fourth-quarter sales number appear also to reflect the ongoing lack of the base, $35,000 model that Tesla has long promised. That helps explain why many on the company’s advance reservation list, opened up in mid-2017, haven’t converted to actual orders, according to several observers.
”Sustainable demand is the real question,” Goldman analysts wrote in an advisory. “We believe the sustainability of demand should be the focus for investors.”
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Initially after the job cuts were announced, a number of those who track Tesla stock issued bullish reports, anticipating the move would buoy its bottom line. But the tone has turned more bearish since then. At least a half-dozen brokerages have cut their own price targets and two have now moved Tesla shares from the “Buy” or “Hold” categories to “Sell.”
Even before Monday’s alert from Tesla analysts were downgrading their first-quarter forecasts, Refinitiv showing a consensus estimate of a $2.5 million loss, down from an anticipated $62.80 million profit forecast early in the month.
As for the fourth quarter of 018, FactSet reports a consensus of a $2.19 a share profit compared with a $3.04 loss during the fourth quarter of 2017.
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