Is Tesla In Trouble? Company Posts $700 Million Loss In The First Quarter of 2019

The company may need to raise more capital soon

Tesla just endured a brutal quarter.

The electric automaker posted a $702 million net loss in the first quarter of 2019. It was one of the worst quarters in the company’s history, even as it closed some stores and laid off employees in an effort to keep costs down.

Things are in flux for Tesla this year, it seems. The company is losing the benefit of the $7,500 federal tax credit, which ultimately hurts its bottom line. The credit will evaporate entirely by the end of this year. The initial explosive demand for the new Model 3 has fallen off, and competition is getting fiercer as other automakers join the fray. “None of these issues are going away,” Karl Brauer, analyst for Kelley Blue Book and Auto Trader, said. “This is the new normal for Tesla.”

The new Tesla Model Y
Tesla is also expanding its product line, including the recently unveiled Model Y.

Balancing supply and demand

As ever, Tesla’s financial health centers around how many units it can shift. While the company did manage to deliver 63,000 units globally, that was lower than what analysts expected. That said, the company’s letter to investors maintains its previous goals. It plans to deliver between 360,000 and 400,000 cars in 2019 — a 45 to 65 percent increase over 2018’s numbers.

Of course, hitting that sort of production output hinges around getting the Shanghai factory online. If it can manage that, which is a challenge in the wake of major quarterly losses, it may be able to hit that mark. In a letter to investors, Tesla said, “If our Gigafactory Shanghai is able to reach volume production early in Q4 of this year, we may be able to produce as many as 500,000 vehicles globally in 2019.” Tesla admits that is an aggressive timeframe, but the company has always maintained big ambitions.

The investor letter said that the company may post further losses in the second quarter. Beyond that, though, they should return to profitability by the third quarter of 2019.

Tesla re-introduced more affordable versions of the Model S and Model X to drive sales in the coming months.

Raising Capital

More than just boosting production and sales, Tesla may need to raise more cash to get through the upcoming quarter. At the end of March, the company had $2.2 billion in cash on hand. However, according to an Automotive News report, it’s planning for $2.5 billion in capital expenditures to develop the upcoming Model Y and the Tesla Semi. Industry analyst Rebecca Lindlard said, “$2.2 billion in cash is a lot of money, but not when you’re talking the kinds of investments Tesla is making.”

The company’s largest debt payment in its history also drained $920 million from its coffers in February. In light of the recent cash dilemma, Musk is reopening the door to a new cash call. “There is merit to the idea of raising capital at this point,” he said during Tesla’s Wednesday earnings call. “It is very important as the company scales to make sure we are on a solid foundation and that we have the appropriate financial discipline across the company and that we are doing it very efficiently.”

Tesla also announced a new chip that will drive its goals for full autonomy in its models.

New Tesla insurance coming next month

During the quarterly earnings call, Tesla CEO Elon Musk also made an announcement out of left field. The company may roll out a new insurance program as early as next month.

According to a Yahoo Finance report, Musk said “It will be much more compelling than anything else out there.” What’s more, Tesla will use driver data to determine rates. Cars like the Model S and Model X are currently some of the most expensive to insure. The quotes also vary dramatically depending on the model. In theory, setting up in-house insurance could save Tesla owners money over time.

Not only that, but cheaper insurance would help drive up demand. If premiums are lower for prospective buyers, it may entice them to buy a Tesla over a competing luxury car. Plus owners could roll that into the cost of ownership. Purchasing, maintenance and insurance would all be under the same roof, similar to car subscription services that have recently cropped up.