Skip to Content
Stock Analyst Update

We Expect Improvement From Tesla

We are giving Tesla the benefit of the doubt and maintaining our fair value estimate.

Mentioned:

We expect  Tesla's (TSLA) first-quarter loss to be the low point for 2019, and we see no reason to change our fair value estimate. Adjusted diluted EPS of negative $2.90 badly missed consensus of negative $0.69. Revenue grew 33% year over year but fell 37% from the fourth quarter, missing consensus, due to Tesla's previously disclosed sequential delivery decline of 31%. We reiterate our April 4 note comments: For now we are giving Tesla the benefit of the doubt that the first-quarter deliveries were a function of problems introducing the Model 3 to Europe and China rather than a demand shortfall. We also said Tesla needs to adjust operations so it can produce to meet demand in all geographic markets at the same time; otherwise it will never scale, in our view. In the first quarter, Tesla produced in batches for geographic locales--what it calls the "wave" approach--so the U.S. got starved for Model 3s in the first half of the quarter so Europe and China could be supplied. With all product coming from California, the long shipping times caused half of first-quarter deliveries to occur in the last 10 days of March. The company is starting to unwind the wave now, but we think realistically it just needs more capacity, which is why having the Shanghai Gigafactory plant on line late this year is important.

GAAP free cash flow burn of $919.5 million was slightly better than $1.05 billion in the prior-year quarter but far from the roughly $900 million positive free cash flow in each of the third and fourth quarters of 2018. The cash balance fell by $1.5 billion from Dec. 31 to $2.2 billion. We suspect the market was expecting something worse for cash on hand, and if management can deliver on curbing the negative working capital impact of the wave, we are not worried about cash for 2019. Management expects positive free cash flow for each of the remaining 2019 quarters, a significantly reduced second-quarter loss versus the first quarter, and third-quarter profitability.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

David Whiston does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.