Tesla (NASDAQ: TSLA) stock has declined about 41% so far this year, touching a multi-year low of $177 on June 3. Even as the Elon Musk-led company swings between profits and losses and analysts remain divided on their opinions, we try to make sense out of the data that we have. Here’s everything you need to know about Tesla and the industry it operates in.   

tesla electric car
The Tesla Model 3 (Image Courtesy: Tesla)

Competition and market share

Though Tesla comes across as a one-of-its-kind player, the EV-maker has a fair amount of competitors that range from traditional carmakers to start-ups.

Automobile giants Ford Motor Company (NYSE: F) and General Motors Co. (NYSE: GM) are two major players in the field who have begun investing significantly in electric vehicles in light of changing trends. Ford has a market cap of $39.5 billion while GM’s market valuation stands at $50.8 billion.

The Ford Focus Electric was one of Ford’s all-electric vehicles and the company sold 560 units in 2018. However, the company stopped its production in North America in May 2018. Ford’s plug-in hybrid version, the Ford Fusion Energi lags way behind the Tesla Model 3 in sales.

US electric car sales comparison

The Chevrolet Bolt EV is GM’s offering to the electric vehicle market and the company sold over 18,000 units last year. GM has been losing money on its EVs and earlier this year the company admitted that it might not make a profit on its all-electric vehicles until early next decade or later.

Another competitor is Nio (NYSE: NIO), which is widely seen as China’s answer to Tesla. While Tesla has been profitable in a few quarters, Nio has mostly seen losses. Nio delivered 3,989 units of its ES8 model during the first quarter of 2019.

nio es8 monthly deliveries

Yet another name that gets pitted against Tesla is Rivian. Rivian, which was founded 10 years ago, focuses on semi-autonomous and electric vehicles as well as batteries. Rivian is currently concentrating its efforts in the luxury adventure space with its R1T pickup truck and the R1S SUV.

Rivian has received investments from Amazon (NYSE: AMZN) and Ford amounting to over $1 billion collectively and the company has also entered a strategic partnership with Ford to develop electric vehicles.

Products and segments

Apart from electric cars, Tesla manufactures and sells energy generation and storage systems in the United States, China, Netherlands, Norway etc. The Automotive segment offers sedans and sport utility vehicles and sells its products through a network of company-owned stores and galleries. A majority of Tesla’s revenue comes from the Automotive segment and Model 3 was the best-selling premium car in the US in the segment for the first quarter.

nio vs tesla deliveries

During the first quarter, the company experienced a decline in deliveries of Model S and Model X mainly caused by seasonal weakness in demand, cut down in the EV tax credit and discontinuation of its 75 kWh battery pack. With its recent product improvement plan on Model S and Model X, as well as the continued expansion of Model 3 worldwide, Tesla expects the order rate to continue rising throughout 2019 as production levels increase.

The Energy Generation and Storage segment offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids. It also designs, manufactures, and sells solar energy systems as well as renewable energy to residential and commercial customers.

Financials

Elon Musk may have defaulted on a lot of promises, primarily relating to the deadline of Model 3 deliveries, but he did stick to his vow of steering the company to profitability by the second half of 2018. Evan as analysts and short sellers remained adamant that this would be impossible, Musk impressively pulled the feat off.

tesla production and deliveries

In the third quarter of 2018, Tesla reported adjusted earnings of $2.90 per share, slamming the Wall Street, which had predicted a loss of 19 cents. Bulls immediately sent the stock up 12%.

However, reporting profits is one thing, sustaining them is a whole different task. Two quarters later, the company went back to a loss of $2.90 per share, as the electric vehicle market started witnessing weakness driven by slashed EV subsidy, besides the slow macro-economic conditions in China, where it was building its Gigafactory.

Cash position

The company, which strives to expedite the transition to sustainable energy, projects capital expenditure of about $2.5 billion for the current fiscal year. Such heavy investment, most of which goes into Model 3 capacity expansion,  is expected to impact liquidity at a time when Tesla is struggling to recover from negative cash flow. The other major cash-gulping projects are the company’s Gigafactories and the manufacturing facility for the Model Y passenger car, which will be rolled out next year. 

tesla cash flow and cash balance trend

On a positive note, the management forecasts that operating expenses as a percentage of revenue will continue to decrease in 2019 – up to 10% from last year – helped by strong revenue generation and improving operational efficiency. According to the company, its vehicle delivery model, wherein the full price is collected in cash at the time of sale, bodes well for cash flow.

Over the past decade, Tesla recorded negative free cash flow consistently and it worsened in the last five years, slipping to (-)$920 million in the March quarter. Though operating cash flow returned to the positive territory in the second half of last year, it slipped back to (-)$640 million in the first quarter of 2019, when total cash balance came in at $2.2 billion.

Analyst view

When it comes to analyst consensus, the electric car maker is at an inflection point. According to TipRanks, out of 24 analysts tracking the stock, 11 have given “Sell”; 7 have “buy” and 6 have “buy” recommendations. Analysts are expecting Tesla’s stock to touch $264 mark in the next 1 year; an upside of 25% compared to today’s trading level.

tesla stock performance

On the bullish front, last month analysts from the Baird said in a note, “(Tesla) is positioned to outperform over the long run, as the company increases profitability, generates free cash flow, and ramps production of innovative products.”

On the flip side, bearish analysts cite a multitude of reasons including rising debt levels, muted demand for electric vehicles, ongoing production issues and dependence on the Chinese market to as a hindrance to improving sales.

Last month, Morgan Stanley analysts stated in a research note, “Demand is at the heart of the problem. The departure of key executives, price discounting and extraordinary cost-cutting efforts add to the narrative of a company facing real potential stress.”

READ: Tesla Q1 2019 earnings conference call full transcript

Bank of America Merrill Lynch analyst John Murphy echoed the concern that many Tesla investors already raise. In his research note, he said, “Tesla‘s pathway to becoming a self-funding entity is still unclear. As such, we continue to question Tesla’s longer-term profitability, cash flow, and valuation.”

Looking ahead

Tesla expects to increase its Model 3 production rate to about 7,000 units per week on a constant basis by the end of 2019. When the Shanghai Gigafactory is ready for production, the Palo Alto, California-based company is expected to produce at least 500,000 units of all vehicle models combined in a continuous 12-month period ending no later than June 30, 2020.

However, starting the production in Shanghai Gigafactory is subject to a number of uncertainties, including regulatory approval, supply chain constraints, and the pace of installing production equipment and bringing the factory online.

The step-by-step reduction in the federal tax credit for the purchase of qualified electric vehicle in the US is likely to create pull-forwards for Tesla vehicles in the future.

Also, the delay in developing self-driving vehicle technology has been a concern for Tesla investors. CNBC had reported that Elon Musk had vowed that the autonomous technology will be ready by this year-end.

The prolonged US-China trade war has been a major headwind for Tesla in recent times and market watchers fear that this could impact Tesla’s performance in the long-term.

tesla Q1 2019 earnings infographic

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