October 25, 2016
Only profitable one quarter (2013) since IPO (2010) and missed 20 projections in last 5 years (lower numbers, late deliveries, etc.), Elon Musk must have felt the pressure by now. “We will be in a far better position to convince potential investors to bet on us if the headline is not ‘Tesla loses money again!’” Musk said, in an internal memo to employees pleading with them to take pay cuts, slash costs, and increase production. Tesla needs to show positive cash flow, and show it fast, in order to prove to investors that Tesla can turn a profit before Model 3 hits full production.
The good news is that, in this quarter, Tesla has finally made the deliveries, positive cash flow, and turned profitable, second time in history. And, while there wasn’t much solace to be found in the SolarCity merger, it appears that SolarCity will turn profitable in the next few weeks.
Tesla is not out of the woods yet, though. With respect to cars, the SEC is still investigating about failure to disclose the fatal crash in May to investors. And, just like Musk changed “Tesla Motor” to “Tesla” and “autopilot” to “driver-assisted,” he also relabeled the Model S as a large luxury sedan. But this time, Autotrader disagrees. Instead, they labelled it as a luxury midsize, putting it in direct competition with Audi, BMW, and Ford’s electric offerings. This dropped the Model S to fifth from last on the Consumer Reports rating scale.
The bright side is that Consumer Reports restored its positive recommendation on Model S after removing the ranking due to battery charging issues and a leaky sunroof, and they think the Model 3 will be Tesla’s most reliable vehicle.
However, the current hefty valuation PE at 64, or a PEG ratio of 2, implies that Tesla has to grow over 30% a year for the next 5 years in earnings.