Tesla Shares Slip After Elon Musk Predicts Automaker Won’t Turn a Profit in Q1
Musk and Co. are rapidly searching for ways to cut costs and raise profits, but the new strategies may not yield results until later this year.
In a surprise announcement on Thursday night, Tesla announced that it will be releasing its long-promised $35,000 Tesla Model 3, a vehicle which CEO Elon Musk had recently predicted would not be available for several more months. In a press call announcing the vehicle, Musk noted that he had reversed his prediction of Tesla posting a profit in the first quarter of 2019, a decision which aided in Tesla shares falling more than 5 percent after hours.
While the public welcomed the vehicle at the lower price point, financial analysts shunned the decision. Garrett Nelson, a senior equity research analyst at CFRA Research, called the lower price point "a mistake from a strategic perspective" and noted that the firm was skeptical of Tesla's gross margins on such a low priced vehicle.
The announcement that Tesla is unlikely to post a profit during its first quarter directly conflicts a prediction made by Musk only 29 days prior:
"I would say at this point, I'm optimistic about being profitable in Q1," Musk said in Tesla's quarterly earnings call at the end of January, "Not by a lot, but I'm optimistic about being profitable in Q1 and for all quarters going forward."
While profit outlooks for Tesla's first quarter may seem bleak, Musk does note that he expects Tesla to be profitable again the end of its second quarter. Originally, Tesla's Standard Range Model 3 was set to be released towards the summer months of 2019; its accelerated release may contribute to the CEO's change in heart. Musk also previously noted that one of its largest challenges in Q1 would be related to logistics, a reason which is later given as part of the reason for the outlook shift.
“Given that there is a lot happening in Q1, and we are taking a lot of one time charges, there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable. We do think that profitability in Q2 is likely.”
Tesla also announced that it would be taking all of its vehicle sales online, a move which, admittedly, will cost an unknown number of individuals their positions in retail stores.
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