Markets

Can Elon Musks electric car-maker beat the odds?

American car maker Tesla is set to announce its first-quarter results on Wednesday May 2, but with a series of setbacks in recent months, investors may be wondering whether the company can live up to expectations.

Analysts at S&P Global Market Intelligence expect the company to report a loss of $3.52 (£2.56) per share in the first quarter, compared to a loss of $1.33 per share in the first quarter last year.

S&P analysts expect Elon Musks car maker to post first-quarter sales of $3.3bn, an increase from $3.28bn in the last quarter of 2017. The company is expected to announce net income losses of nearly $700m.

Read more: Walk out of meetings and cut off calls: Elon Musk shares productivity tips

The first quarter results come at a tough time for the pioneering electric car maker.

Last month, the company recalled 123,000 Model S cars because of faulty steering component. A week earlier, one of the companys cars that was driving on autopilot crashed in California, killing its driver.

Earlier this month, the firm paused production on its Model 3 assembly to “address bottlenecks”. Meanwhile, Moodys has downgraded Teslas credit ratings and changed its outlook from stable to negative.

Read more: Tesla has temporarily stopped Model 3 production to tackle bottlenecks

Still, Ben Kallo, senior research analyst at Baird Equity Research is “cautiously optimistic” on the companys first quarter report.

“While a possible sequentially larger capital drawdown and potentially weak margins could create headline risk, we think Tesla may be able to exceed overly negative expectations,” said Kallo. “We would be buyers after the dust settles, and recommend shorts cover ahead of the report, which we believe could remove an overhang on the stock.

“We expect margins will show sequential improvement throughout 2018, and think cash generation will improve.”

While the losses the company is recording at the moment may seem worrying on the surface, as Stephen Baines, investment manager at Kames Capital explains, companies like Tesla need to invest heavily in research and development in order to stay ahead in the field.

Unlike break out tech giants like Google or Apple, which are cutting edge leaders in their field and are therefore “generating more cash than they can possibly reinvest,” Tesla is what Baines calls a “cash incinerator”:

“They too are growing rapidly, but to compete against incumbents they are required to deploy enormous amounts of capital, far in excess of what they can generate internally.”

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Markets

Can Elon Musks electric car-maker beat the odds?

American car maker Tesla is set to announce its first-quarter results on Wednesday May 2, but with a series of setbacks in recent months, investors may be wondering whether the company can live up to expectations.

Analysts at S&P Global Market Intelligence expect the company to report a loss of $3.52 (£2.56) per share in the first quarter, compared to a loss of $1.33 per share in the first quarter last year.

S&P analysts expect Elon Musks car maker to post first-quarter sales of $3.3bn, an increase from $3.28bn in the last quarter of 2017. The company is expected to announce net income losses of nearly $700m.

Read more: Walk out of meetings and cut off calls: Elon Musk shares productivity tips

The first quarter results come at a tough time for the pioneering electric car maker.

Last month, the company recalled 123,000 Model S cars because of faulty steering component. A week earlier, one of the companys cars that was driving on autopilot crashed in California, killing its driver.

Earlier this month, the firm paused production on its Model 3 assembly to “address bottlenecks”. Meanwhile, Moodys has downgraded Teslas credit ratings and changed its outlook from stable to negative.

Read more: Tesla has temporarily stopped Model 3 production to tackle bottlenecks

Still, Ben Kallo, senior research analyst at Baird Equity Research is “cautiously optimistic” on the companys first quarter report.

“While a possible sequentially larger capital drawdown and potentially weak margins could create headline risk, we think Tesla may be able to exceed overly negative expectations,” said Kallo. “We would be buyers after the dust settles, and recommend shorts cover ahead of the report, which we believe could remove an overhang on the stock.

“We expect margins will show sequential improvement throughout 2018, and think cash generation will improve.”

While the losses the company is recording at the moment may seem worrying on the surface, as Stephen Baines, investment manager at Kames Capital explains, companies like Tesla need to invest heavily in research and development in order to stay ahead in the field.

Unlike break out tech giants like Google or Apple, which are cutting edge leaders in their field and are therefore “generating more cash than they can possibly reinvest,” Tesla is what Baines calls a “cash incinerator”:

“They too are growing rapidly, but to compete against incumbents they are required to deploy enormous amounts of capital, far in excess of what they can generate internally.”

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