Tesla Seen Forecasting First-Quarter Loss After Musk Warning

Wall Street analysts expect Tesla to forecast a loss for the first quarter when it reports results on Wednesday, having changed their expectations for a profit after Chief Executive Officer Elon Musk warned of a "very difficult" road ahead.

On January 18, Musk announced thousands of job cuts and said the electric car maker was targeting a "tiny profit" in the first quarter "with great difficulty, effort and some luck." He also forecast a profit for the fourth quarter, albeit down from the third quarter's $311.5 million (roughly Rs. 2,200 crores).

The analyst consensus on January 21 turned to a loss for the first quarter and stands at $2.5 million (roughly Rs. 18 crores). Analysts on average were expecting Tesla to post a profit of $62.80 million (roughly Rs. 446 crores) on a reported basis as of January 17, according to Refinitiv data.

"One potential rationale for the company guiding to a loss in March is the timing of vehicles in transit to Europe and Asia," said Gene Munster from Loup Ventures in a note on January 24.

The company has said it would begin delivering Model 3s to Europe and China in February.

Musk's dependency on "luck" to be barely profitable while selling its long-range Model 3 to Europe and China and the mid-range Model 3 in the US calls into question the company's ability to make profits when it finally starts selling its long-promised $35,000 vehicle, analysts said.

Since unveiling the Model 3 three years earlier, Tesla has faced hurdles ranging from production hassles to logistics problems along with a cash crunch and self-inflicted wounds by Musk's erratic behaviour.

While the production of Model 3s are going steady at over 5,000 per week, analysts expect Tesla to face tougher competition from lower priced offerings from Jaguar and Audi, and a reduction of electric car tax credits.

After the federal tax cut came into effect from January 1, Tesla was forced to lower the price of Model 3s by as much as $2,000. That decision is likely to eat into Tesla's thin profit margins in the first quarter.

At least six brokerages have cut their price targets and two have downgraded the stock to "sell"' or equivalent this month, after Tesla's fourth-quarter Model 3 deliveries fell short of expectations.

Shares of Tesla have fallen nearly 14 percent since the job cuts announcement on January 18. They were down 3.1 percent at $287.85 on Monday.

The company is set to report its fourth quarter results on Jan. 30.

© Thomson Reuters 2019