It is time for Elon Musk and
shareholders to accept reality: The company’s days as a growth darling are coming to an end.
Second-quarter revenues of $6.3 billion and an adjusted loss of $1.12 a share fell well short of analyst expectations. Shares fell sharply after hours.
While missing Wall Street estimates is never a good thing for public companies, this one should sting more than a typical quarterly stumble. Questions about how strong consumer demand is for Tesla vehicles are bound to intensify.
Tesla reported more than 95,000 vehicle deliveries in the second quarter, a company record. Yet that quarterly revenue tally was more than 10% below the previous record, set in the fourth quarter of last year.
There was one significant bright spot: Tesla did generate positive free-cash flow of $614 million. But that was accomplished by delivering more cars than they produced following logistical snafus a quarter earlier—obviously an unsustainable long-term tactic.
That cash flow, coupled with a capital raise back in May, helped Tesla show a cash balance of about $5 billion, helping to shore up its finances. But serious concerns remain: Accounts payable still tops $3 billion, while long-term debt on the balance sheet tops $11 billion.
Wall Street could overlook those losses if the top-line growth was sufficiently attractive, but there are big doubts on that front now. Analysts expect third-quarter sales of $6.7 billion, according to FactSet. That would mark a decline from a year earlier. Investors need to brace themselves for the possibility that they own an unprofitable growth stock that just stopped growing.
Tesla will remain a battleground stock, and Mr. Musk will likely continue to predict bustling Chinese factories and autonomous robotaxis. His more devoted fans are bound to take the boasts at face value. Everyone else, however, would do well to note that Tesla’s capital spending fell once again in the second quarter to just $250 million, well below what it booked in depreciation charges. Tesla cut its full-year estimate for capital spending to $1.5 to $2 billion and will need to significantly increase its spending to hit even the low end of that guidance.
Sometimes, actions really do speak louder than words.
Write to Charley Grant at firstname.lastname@example.org
Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8