Can Tesla, Inc. Really Become Profitable in the Third and Fourth Quarter? – The crazy Motley

The big question for the electric car company Tesla (NASDAQ: TSLA) is now whether it can become profitable in the second half of 2018. Losses have increased, and negative from the company the free cash flow has worsened.

Last year, Tesla's total net loss was $ 2.2 billion. Worse still, its operating cash flow minus capital expenditures – or free cash flow – was negative $ 3.5 billion. Starting in 2018, Tesla's net loss was $ 785 million in the first quarter and its negative free cash flow of $ 1.05 billion

Thankfully, Tesla's CEO, Elon Musk, said that he had a negative impact on his life. he hoped the company would flow positive both Q3 and Q4. According to Tesla, production and shipments of Model 3 will increase the company's production and help it achieve profitability. But is Tesla's perspective realistic?

Model 3. Image source: Tesla

The strategy

Skip from losing nearly $ 800 million in T1 to be profitable by Q3 and Q4 The business of Tesla will need a significant growth. Specifically, management has stated that it is expected to sustainably produce 5,000 model 3 vehicles a week to achieve this.

Model 3 production increased by about 1,000 units a week at the beginning of the year. up to 5,000 units per week at the end of June required significant investments. It goes without saying that the fixed costs per unit produced in Model 3 would weigh heavily on profitability until Tesla increases Model 3 production to levels consistent with those of the Model 3 production line. 19659003] In the first quarter, Tesla said its rapidly rising model 3 production would help the company to go from a gross margin for the vehicle 'slightly negative in the first quarter of 2018 to near the end of the year. balance in the second quarter and then very positive ". Q3 and Q4. "

To make the numbers as favorable as possible in the second half of the year, the company is very focused on selling only the more expensive versions of the Model 3. The long-awaited model 3 $ 35,000 It takes wait until the end of the year or the beginning of next year.

To ensure that the demand for its premium versions of Model 3 is sufficient to support the production rate of 5,000 units per week recently achieved, Tesla is deploying high-performance versions of its Model 3 vehicles to all US stores and exhibition halls for road testing, and Tesla has recently opened the online design studio Model 3 in North America, allowing anyone in the United States and Canada to order from its long-range versions, Model 3. In addition, Tesla began presenting Model 3 at the top of its page welcome on his site this sema

When you combine Tesla's move from anti-sale to model 3 to the use of aggressive marketing tactics with his 420,000 deposits the bookings for Model 3 at the end of his Q2, demand for high-end versions of Tesla Model 3 will likely be robust – and probably high enough to account for most of Model 3 shipments in 2018.

Some Quick Math [19659008] But Figures Work -they? Assuming that Tesla can deliver about 5,000 model 3 vehicles a week in the second half of the year and that model 3 can be sold at an average price of about $ 55,000 (versions model 3 currently available costs between $ 49,000 and $ 77,000). 3 could help Tesla generate approximately $ 7.2 billion in business revenue in addition to sales of other vehicles and business segments in the second half of the year.

Although the gross margin that Tesla believes it can reach in the second half of the year is not clear For model 3, management has stated that it wants to achieve a gross profit margin of 25% for the vehicle. Therefore, assuming that Tesla can make progress in achieving this goal, achieving a model 3 gross margin of 15% would result in a gross profit of about 1, $ 1 billion of new vehicle during this period. And if the rest of Tesla's business can generate gross profits in line with what the company has achieved in the second half of 2017, Tesla could generate about $ 2 billion in gross profits in the second half of the year.

Since Tesla If Tesla recently dropped its revenue by about $ 1 billion a quarter, it may need to reduce its operating expenses to reach profitability with $ 2 billion dollars of gross profits in the second half. Of course, Tesla does exactly that.

A Tesla Powerwall. Source of the image: Tesla.

Profitability in the third and fourth quarters is possible. But this is based on a too simplistic prediction using what many may consider aggressive assumptions. On the other hand, it is still possible that this exercise underestimates the contribution of Tesla Energy or is too conservative with respect to certain assumptions made about the Company's Model 3 program.

For example, this imagined scenario may underestimate Model 3's average selling price or the number of model 3 vehicles that Tesla can deliver in 2018. After all, Tesla recently stated that it believed it could achieve a model 3 production rate of about 6,000 vehicles per week at the end of August. In addition, Tesla's energy business is booming – a trend that management believes will continue in 2018. Higher sales in this segment could have a positive impact on gross profit. total.

forecast for Tesla's profitability in the second half of the year, but rather to highlight how uncertainty about whether the automaker can swing on a profit is still looming – even though Tesla has recently increased the production of model 3.