Tesla Has Good News and Bad News

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Elon Musk is no longer confident that Tesla Inc. (TSLA) will generate a profit in the first quarter.

During a conference call with reporters, the CEO of the electric carmaker cautioned that the company has been forced to swallow a lot of exceptional costs.

“Given that there was just a lot happening in Q1, and we’re taking a lot of one-time charges and there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable in Q1,” Musk said. Tesla’s CEO added that “profitability in Q2 is likely.”

Musk’s admission that Tesla is still losing money contradicts his previous prediction that the company would now be profitable in every quarter. As recently as January, the entrepreneur said he was “optimistic” that Tesla would turn a small profit in the first quarter.

Failure to deliver on this promise saw shares in the electric automaker fall 3.276% in overnight trading.


$35,000 Model 3 Has Arrived

Tesla was at least able to deliver on another big promise. During the media call, Musk confirmed that the company’s widely-talked about $35,000 Model 3 sedan is now available.

In a blog post, the carmaker revealed that its cheapest car has a shorter battery life, going 220 miles on a full charge, compared to the 264 miles that its midrange models offer. The budget mid-size sedan also offers a top speed of 130 mph and can go from 0 to 60 mph in 5.6 seconds. 

Musk told journalists that it was “excruciatingly difficult” to make a car for $35,000 and that costs had to be slashed to achieve its goal. To make the cheaper version of the Model 3 “financially sustainable,” he added that Tesla is shifting to an online-only sales model, a process that involves turning some of its stores into showrooms and laying off staff. Moving to online sales is expected to slash all vehicle prices by about 6 percent on average.

Analysts were divided on the benefits of Tesla introducing a cheaper vehicle. Daniel Ives, managing director at Wedbush Securities, said a $35,000 car could be a “potential game changer” for Tesla’s growth. “While there are still questions that need to be answered around logistics and delivery… we believe this strategic shift was the right move at the right time for Tesla,” he wrote in a note, reported on by the BBC.

Garrett Nelson from CFRA was less optimistic, telling CNBC that the lower price will hurt margins.

“We think it’s a mistake from a strategic perspective and are skeptical of the gross margins on that $35,000 vehicle. In our view, they would be better served sticking to premium electric vehicles instead of this mass market, Henry Ford-type mentality of affordable vehicles for all,” he said. “It might be different if Tesla had the production capacity to drive volume and margin for this lower priced version, but they don’t currently and to add the incremental capacity would require significant additional capital investment.”

Musk refused to answer questions from journalists about the profit margin on the $35,000 Model 3.



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