There were some awkward surprises in Tesla's latest financial filings

Mike Windle/Getty ImagesTesla CEO Elon Musk.
  • Tesla’s recently released financials paint an even worse picture of the company’s finances than CEO Elon Musk did last week.
  • On top of a few nasty surprises, the filing did little to shift the conversation away from a lack of demand for Tesla’s cars.
  • Meanwhile, questions linger about how Tesla will execute on its latest strategic shift – turning its cars into a fleet of robo-taxis.

Wall Street just got to see all the details of Tesla’s disastrous first quarter, and now things look even worse for the electric-car maker than they did just a few days before.

Here’s what went down: Last week the company reported select numbers – including a $US700 million loss and deliveries that fell 31% from the previous quarter – while CEO Elon Musk swatted away questions about demand and refused to lower his expectations for the year to come.

Then on Monday, Tesla released all of its numbers, and there were a few nasty surprises that it had neglected to mention the week before. For one thing, the company made $US216 million selling auto-energy credits, without which it would have experienced a quarterly loss of about $US900 million.

For another, it stealthily changed its next “milestone.” In its annual report, Tesla wrote it would make 500,000 Model 3s from June 30, 2019, through June 30, 2020. Now the electric-car maker says it’s going to make 500,000 cars total during that period.

It also admitted to having a problem with one of its suppliers that held up production in the first quarter.

And finally, Tesla said it was in “material compliance with all financial debt covenants” by the end of the quarter. That may sound good, but this is Wall Street and words are tricky. Adding “material” to that sentence (as opposed to flat-out saying it is “in compliance with all financial debt covenants”) means something is amiss. Tesla has yet to answer Business Insider’s question about what exactly went wrong there.

Demand

Tesla listed a litany of problems with the quarter, none of them having to do with the problem Wall Street is focused on – demand. Over and over again on the earnings call, as he’s been doing for a few quarters now, Musk stressed that the company has no problem with demand.

Musk and his colleagues made its dismal sales numbers and multiple price cuts over the quarter sound like a blip – one caused by seasonality, global logistical problems, an isolated supplier limitation, and difficulties manufacturing for more than one region and for different variants of a car at the same time.

Tesla maintained that next quarter it’s going to blow it out of the park and deliver 90,000 to 100,000 cars (compared with the 63,000 it delivered this quarter). So some bulls, like Jed Dorsheimer at Canaccord Genuity, say that should “quell demand fears.”

Bears, of course, don’t buy Tesla’s reasons for its sales collapse in the first quarter. They point to the fact that Tesla didn’t make the mark this quarter and that it has a history of missing guidance.

Musk dodged any questions about demand or future price cuts on the conference call. He played down the existence of the $US35,000 Model 3 that the company had proposed with such fanfare. Now customers have to call Tesla if they want one, and Musk said on the conference call that Tesla is seeing evidence that customers who would have bought the $US35,000 car are actually opting for the more expensive model. That should help with the car’s margins, which fell from 25% in the fourth quarter to 20% in the first quarter.

Tesla said in its filing that it “may choose to seek alternative financing sources” for its operations. That makes sense. The company is now sitting on $US2.2 billion of cash and has guided to spending about the same amount in capital expenditures for the year. It’s bleeding money, and it wants to finance the build-out of its Shanghai facility and the production of its Model Y and Semi next year.

The story has changed

Over at Morgan Stanley, Adam Jonas, a longtime booster of the company, admits the story has changed. He just cut his price target on the stock (from $US240 to $US230) for the fourth time this year:

We have long believed that Tesla’s share price movement is driven by 3 primary factors: (1) demand, (2) cash flow and (3) access to capital markets. A deceleration in the first driver has led to an outflow of the second, leading to a more dilutive outcome of the third. If we think back to late 2018, when the stock was trading above the $US350 range, few investors questioned near-term demand for the product as the Model 3 was hitting the streets in exponentially higher volume. At the same time, Tesla posted very strong free cash flow generation in the back-half of 2018 … leading many to think the moment of “self-funding” had finally arrived at Tesla.

People thought self-funding had come to Tesla, in part, because Musk said it had. He reversed course last week when he introduced Tesla’s plan to put 1 million self-driving robo-taxis on the road by the end of this year. He said that thanks to a chip that Tesla had developed, it was now leaps and bounds ahead of its self-driving-tech competition at Uber, General Motors, and Google.

This without using lidar, a technology that uses lasers to measure distance to a target. Tesla’s competitors all use it, but Musk has bashed it as foolish, unnecessary, and too expensive.

Instead of swinging back to profitability, Musk says Tesla will use all of its resources to ensure that this robo-taxi plan is executed as soon as possible. Drivers, he said, can clear up to $US30,000 a year if they upload this new technology and join Tesla’s robo-taxi fleet. It’s unclear how Tesla will get regulatory approval for this business, or how it will insure all of these cars (which Musk said it would likely be liable for). Tesla didn’t answer any of our questions on that either.

What we do know, though, is that the cost to build a robo-taxi is about $US38,000. About the same amount it costs to build a Model 3, incidentally.

We also know that Tesla held a big event to announce this change – likely because it’s a big strategic shift. The word “autonomous” was not mentioned once in its January annual report, but it appeared four times in its most recent filing. Stories change.

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