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Tesla Poised To Post Massive Q1 Loss

Mar. 01, 2018 10:58 AM ETTesla, Inc. (TSLA)674 Comments
Montana Skeptic profile picture
Montana Skeptic


  • CoverDrive isn’t perfect. Far from it. But he’s better than any other Tesla forecaster.
  • He has penciled in some preliminary numbers for Q1. He sees $855 million in GAAP losses, which shatters Q4’s staggering record of $675 million.
  • CoverDrive lays it all out here, explaining his assumptions and confessing where he’s guessing.
  • Tesla Charts is back with some more excellent graphics, including his take on the Bloomberg Model 3 tracker.
  • We’ll make amends for a few misses in our last article, and end with a look at a recent Reddit post about another Model 3 production problem.

We're a month away from the end of a calendar quarter, and that means it's time to check in with CoverDrive about his Tesla (NASDAQ:TSLA) earnings forecast.

His effort one month out always incorporates an unavoidable element of "SWAG" (scientific wild-ass guess). There is no sense pretending to be certain about the number of deliveries or the size of the regulatory credit variables. They bounce around from quarter to quarter, and so one must make an educated guess.

That said, I make no apologies for offering the preliminary forecast, as CoverDrive has been close to the target in the past.

Has he been perfect? Of course, not.

Has he been closer than the contemporaneous analyst consensus? Indeed he has. Just as Mohammed in the end determined the mountain would not come to him, and so he must go to the mountain, so too do the analysts inevitably work their way toward CoverDrive's numbers rather than vice versa.

I. CoverDrive Speaks

Enough throat clearing. Without further ado, I give you CoverDrive. What follows is his missive, delivered on the evening of Feb. 28.


As always, I begin with estimating car deliveries. Let's look at Model 3 first. Being a new model, there's plenty of forum discussion upon which to draw.

The most surprising thing is that for the last 10 days of February, new VIN assignments dried up almost completely. My take is that the automated battery line will arrive soon, and pending the arrival Tesla has concluded it doesn't make sense to continue cranking the batteries out on the manual line.

In any case, Tesla is running out of time to schedule, build, and deliver more cars this quarter. I'll join my friend Adam Jonas and predict 8,000 Model 3 deliveries this quarter.

For the Model S and Model

This article was written by

Montana Skeptic profile picture
I have a J.D. degree from Yale Law School, practiced for 30 years as a trial lawyer in commercial cases, and in the decade that followed managed a $1B+ portfolio for a family office. I have recently retired and am free to write about whatever I want. And so I will.The fellow in my icon is Galileo Galilei, who famously said: Eppur si muove.I say, less famously: Time is the only reliable solvent of folly.

Analyst’s Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am short TSLA via long-dated options.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (659)

Dansplans profile picture
Ace I think you will enjoy these predictions:

Ok, I bookmarked it. Thanks for pointing out.

I guess I'm in for 150k Model 3 as of what's known right now, which of course isn't fair to those on that list who guessed 2 years ago.
Dansplans profile picture
When Tesla added the third shift in the second half of 2017, there was no increase in production. Removing the shift would appear to have had little affect on the downside. There is in fact no evidence from the S and X production numbers, that there ever was a third shift implemented. Tesla games the numbers as and when needed. It is that simple.

Ace I am on record estimating non-employee and insider sales of the model 3 at below 40,000 units for 2018. So far my estimates are the gold standard.
40,000. So since they are selling non-employee cars right now, you mean to say that for the remainder of the year they will come in under 40k? I think that's pretty darn unlikely. Some probability in production maybe (< 5%), almost no probability on demand (< 1%). I do admire predictions so long as the giver holds himself accountable.
Andreas Hopf profile picture
My assumption still is 110,000 Model 3 in 2018.
watchingfromabove profile picture
@Andreas Hopf

>>>My assumption still is 110,000 Model 3 in 2018.<<<

I personally think you are overly optimistic. I'll be happy if they manage 70K-80K for the year if they exit the year at 2500/week pace.

The cover story is that they pulled the personnel to concentrate on the Model 3 production ramp. This is of course BS, it is to cover for the loss of demand for the S and X. That is why they are projecting only 100k production even though with 2 shifts they can do more than that. It actually makes sense to cut to 2 shifts though, no one runs 3 shifts for long unless necessary, there are things that need done daily on the lines to keep them running efficiently.
kitsinu profile picture
There seems to be a significant difference in sales estimates between this article and Anton Wahlman's article. https://seekingalpha.c...

While this article assumes a 24,000 Model S and Model X production rate, Mr. Walhman's article suggests 23,000 iff Tesla miraculously doubles its January and February sales for the month of March. My understanding is that Tesla reduced the number of shifts producing Model Ss and Model Xs from three down to two. Since Tesla probably didn't manage to increase the rate those remaining two shifts could produce vehicles at by 50%, I believe Mr. Wahlman's figures. This suggests we may be looking at total sales of 18,000 Model Ss and Model Xs this quarter.

The stock market has been very patient forgiving of Tesla's new product production problems, but I doubt the stock market will be as patient if Tesla has a demand problem for its core products.
Model 3 is by far the dominant variable. Estimates for the year might range from 100k-300k which overwhelms the mathematics of S/X deviating a bit from 100k. OF course the majority of bears here likely have more extreme scenarios but then they tend to conveniently forget later they had extreme scenarios.
kissing: "My understanding is that Tesla reduced the number of shifts producing Model Ss and Model Xs from three down to two. "

And why would they do that? Tesla says the demand is there and they need cash. Presumably, the S and X have much better margins than the 3 (far higher prices), so cutting production its financial idiocy.
kitsinu profile picture
Finally found it.

From Laurie Shelby's blog at Tesla: On workplace safety at Fremont:

Okay, so this happened last year and does not seem to have altered production. My mistake.

So much for the easy answer to why the numbers appear to be slipping. The alternatives are suppliers getting back at Tesla, a possible lithium or cobalt shortage and just running out of money without being able to do a cash raise. Well, we shall see in a month.
Musk is the leader of a Cult. The Believers want to believe rather than question why the real facts are avoided, hidden, or discarded by the Cult leader. Cult believers have a very difficult time dealing with the reality that TSLA is a failed company, Musk has shown a complete ineptitude of running a successful automobile company even though he had a decade and a half to get it right. Also, ten of those years saw TSLA in a monopolistic position and still couldn't get it right.

When the Believers find reasons to avoid the condition of the Balance Sheet and other financial statements, the reality that TSLA has existed on government handouts, Junk Bonds, and mythical promises that all is good and will be even better...tomorrow, tomorrow, tomorrow. You have the be a cult follower to buy into the nonsense in the face of the undisputed facts.

Trees don't grow to the sky and there's no free lunch. The share price is all Water.
I enjoy the psychological projection around here as discursive essays like this talk about 'cults' while the writer himself has all the emotional hallmarks and lack of incredulity you'd find in someone whipped to mob-level frenzy. What's going to be interesting is watching the sociology of this place as these precious 'balance sheet' fundamentals turn around. My guess is none of the shorts here will acknowledge all their prior sins. It will just be as if someone turned down the volume knob slowly until few are left, and the various anonymous contributors will just slink off to their next project.
"I enjoy the psychological projection"

Which strike prices of 2020 PUT options are you guys buying? Most of them have huge bid/ask spread.
100, 150 and 200's - At BK the 100's pay out 14 to 1
Fortune Cookie model say "Unwise to bet fortune on kooky CEO".
rnn profile picture
Some stocks rally huge on bad earnings and some have superb earnings and rally down.
The good news is not always good.
B4B00SHK4 profile picture
Excellent article, Montana. Thanks. It will be interesting to see whether investors will positively receive Tesla's "favorable working capital arrangement" in 2018H1. That, after all, was Adam Jonas's prediction. The delays and your report that Panasonic cells are piling up do not bode well for his prediction. Looking forward to your analysis of gross profits and cash flow.
traxx profile picture
BTW this is an interesting video of the new Jaguar I-Pace vs ModelX

Not only is the Jaguar way cheaper and better looking its performance is better

watchingfromabove profile picture

>>>Not only is the Jaguar way cheaper and better looking its performance is better<<<

Although the performance of the I-pace is adequate and even good, they did not actually compare it against the performance version of the Tesla Model X.

Even though they stated they were going to compare it to the P100D, the car actually run against was the X100 D, not the P(performance) version. Slightly sleazy but it has come to be what we expect from ICE manufacturers with only tiny differentiation between models. The P version would have beat the Jag pretty handily according to the specs demonstrated to date but that wouldn't have looked good for the advertisement demo, so no actual P100D comparison.
The iPace is fine. It's about the size of the model Y and clearly coming out 2+ years before it. It seems to me that at the premium end we're probably going to see a convergence in performance on 'sufficient for 99% of people'. I kind of doubt at 75k$+ price points people will be unhappy with BEV performance going forward.

What the iPace won't be able to do is generate enough interest to literally dent X sales. Jaguar is going to have a lot harder time selling the idea of a BEV to its customers than Tesla does, and most of them will sit moribund at dealerships. Which is why it's targeting 13k appropriately in the first place. Although I would assume somewhere like Norway is itching for some diversity and will be all over it.
Montana Skeptic profile picture
Ace: "What the iPace won't be able to do is generate enough interest to literally dent X sales."

Wake up. Jag marketed first to Norway. Huge demand there, and it's already gutting Tesla orders and margins. Next up: UK.

Tesla is totally screwed in Europe, and Tesla cultists (you are Exhibit A) won't know what hit them.
I like Elon Musk and Tesla. Tesla is leading the way but not really doing anything Ford and GM cant or aren't doing. Therefore stick with Ford.
Is this the end of the beginning or the beginning of the end?
Montana Skeptic profile picture
Petersmond: "Is this the end of the beginning or the beginning of the end?"

Guess right and you can be quickly wealthy. Guess wrong and...
The Crysenburger profile picture
it feels much too late to be the end of the beginning, but I have no skin in this game other than a front row seat at an impending financial calamity. So there's your caveat.

The thought of selling options has crossed my mind numerous times but this thing is just not for investors who want to risk money they might need one day.

It's for gamblers and people who like risk. Lots of risk.

The beginning of the end??? Who the heck knows how many more rabbits they can pull out of their .... hat. They can do a lot of things for who knows how long (other than sell cars at a profit).
Stevo56 profile picture
The Deer Hunter of investing....
Montana Skeptic profile picture
Jeff Sipe: "Could Musk be: the new Henry Ford; from scratch, changing the way cars are made on the planet?"

Interesting you should say that. In 2014, Goldman Sachs published a very influential research report about Tesla, which included three scenarios:

Elon Musk as Steve Jobs
Elon Musk as Henry Ford
Elon Musk as the Maytag Repair Man

In all three scenarios, Tesla was profitable. In the Jobs scenario, stratospherically profitable, and in the Ford scenario wildly profitable.

Goldman offered endless spreadsheet detail. Its projections showed Tesla beginning to be profitable in 2015. For the "Musk as Ford" scenario, Goldman projected Tesla would earn $9 per share in 2017 and $12 per share this year.

Goldman now forecasts, of course, steep losses both in 2018 and 2019. Not sure about 2020, but I'll check back with GS soon.
Well things change when you are no longer involved in the secondaries.....
Always eschew GS. GS sells. GS is strictly a MARKETING COMPANY -- zero expertise in markets. BS sells -- that is why GS loves Musk.
Maxed Out Mama profile picture
Yes, the famous "Great Expectations" work of financial fiction. I am waiting for the one with the Tom Swift case model.

People forget that GS does these straight-line things that rarely work out, such as their oil @ $200 a barrel. As if that could ever happen in a vacuum. There are things I would like to write, but I won't. However, any investor should always take GS reports with half a shaker of salt - GS is big enough to have its own environment and its own interests, and sometimes their efforts have a lot more to do with what they wish will happen than what is likely to happen.
Could Musk be: the new Henry Ford; from scratch, changing the way cars are made on the planet?

And to boot, changing the way they run, are sold, maintained, and charged;

So this author expects that wholesale and necessary innovation to be FREE and instant. No books has ever researched what facilitated Ford to innovate cars before there were even but a few thousand miles of macadam; he simply knew Americans would want to be seen in a car! Just like want to be seen on a cell.

IF anyone has seen the videos on how the “3” looks, works, and operates ... save that center display ... it is nothing short of innovative, interesting and cool;

Will the batteries die? Sure, it is a new art; is it a pain to charge on a long trip, yep?

But who ever bought a Corevtte, as the primary long ride? No one!

The 3, if you just buy and hold it, those first production runs, will be worth double easily; buy two, store one, worth its weight;

So collectors should pray, Musk moves on to 4;

NOW, owning the stock at these levels, and its nearly year of chop, sideways, and shortedness ... is the ride of a life time.

Buckle Up!
Yeah buy the most over hyped, over valued stock in the market at the apex of a bull market right before the Fed goes on a massive tightening cycle to unwind and wring out over 4 trillion dollars of excess capital injected into the system. It's gonna be a ride, but trust me you aren't going to enjoy it.....
Maxed Out Mama profile picture
Well, he's definitely not changing the way cars are manufactured! There isn't anything new in Tesla's planned production lines for the car itself. Time to sober up.
insaneinthemembrane profile picture
Hahaha, "save the center display" -- you do realize that the center display is a critical piece of equipment, without which the car would be even more undrivable?
02 Mar. 2018
Tesla won't exist in 5 years. Mark it. It only got off the ground thanks to Obama bucks and Trump won't be repeating that mistake. Little Elon is a failure in everything he's ever done. Maybe he'll get one of his rockets to Mars with him on it so he can build his unicorn farming commune and leave such petty matters as turning a profit behind for good.
insaneinthemembrane profile picture
Elon did profit off his Yellow Pages website and PayPal.

Nothing to do with building cars though.
djunh1 profile picture
i am not a fan of tesla, but you have to give him credit for zip2 and making a killing on that. Any one of us here wish we had the programming chops and luck to have an exit like he did...all before 30. Maybe car manufacturing isn't in his wheelhouse, but to dump on the guy for what he did in the past would be wrong in my book.
Tokyo Picker profile picture
I disagree. Can you think of a better way for BYD to enter the US than to buy Tesla out of Chapter 11. If I was them, I would already be in touch with the senior lenders. They could pick up the brand, the DTAs, the supercharger network and the service centers for less than $10bn.
CoverDrive profile picture
I must send out my thanks to Tesla Charts for his contribution to the article!

Although the blue bar on the earnings chart looks ominous, keep in mind that last quarter's earnings would have looked identical, were it not for the salvation of record ZEV credit sales.
I think they will actually really impress us and lose over 1 billion this quarter....
CoverDrive profile picture
I don't think there's any sales volume scenario that will drive losses to $1B. There would have to be a large one-time expense or the M3 gross margin would have to be truly horrific.
insaneinthemembrane profile picture

1. Do you have any position in TSLA?
2. What do you think about the I Pace as a car?
3. What impact do you think the I Pace will have on Tesla sales?
Colorado just announced that they are looking to end their tax subsidy to rich people buying teslas as well
Tokyo Picker profile picture
Wife has banned me from discussing Tesla with her. Hopefully it is not an obsession but the guy really rubs me the wrong way. He didn’t have the vision to start the company and in fact used his position as an Angel investor to oust the original owner. He then rewrote history to take all the credit. I really, really dislike people who over promise and under deliver. The reverse should be the case. Did a search on YouTube for Elon Musk and the fawning interviews sicken me. Pride goeth before a fall and I am betting with long dated puts that Elon will continue to fail. Thanks for letting me rant here as it will save the relationship with my wife.
No problem - she will love to hear you talk about Tesla when you make 8x on your money....
insaneinthemembrane profile picture
My wife is more understanding. You know how Elon's cheerleaders always say "just take a drive"? Well, I took my wife to the Tesla store, and she said the thing felt like a tank, was way too complicated to drive with all the screens, and was way too expensive for what you're getting.
bleebo, my beloved Libby does not approve of my long short puts on Tesla, but as I'm making paper profits on said puts she's coming around.
snaimpally profile picture
Thanks for a refreshingly honest assessment of TSLA. I fail to understand the lofty valuation afforded TSLA given that they have not been able to ramp up production for the model 3. Their motto should be "we overpromise and under deliver". GM has the Bolt and the Volt, Nissan has the Leaf, etc. and these companies can easily scale up production of existing models and expand their model line up. Once Mercedes, BMW, and VW ramp up and offer stylish electric vehicles, they will drive TSLA out of business.
The Crysenburger profile picture
Their motto should be "we overpromise and under deliver".

Not so much a motto as it is a way of life.
arondaniel profile picture
Tesla balleted: "In so doing (designing our battery pack to permit flexibility in cell chemistry and form factor), we can leverage the substantial investments and advancements being made globally by battery cell manufacturers to continue to improve cost."

Montana explanation: "TheDoktor graciously helped me out, explaining it was to cover for Tesla's admission that it was not going to redesign the battery packs for the Models S or X to accommodate the new, and supposedly superior, 2170 cell."

Huh... I don't follow Herr Doktor's logic, at all.

The Model S and Model X packs are a finished piece of engineering. Tesla already stated there is basically no more room for batteries so 100kWh is all we can expect... for THIS iteration of S and X.

But what about the NEXT iteration of S and X? New Roadster will have 620 miles of range (~200 kWh pack). S and X have more space for batteries so they should eventually put up similar numbers.

At that point, what do you care? (Assuming of course you don't own a "classic" S/X and are therefore super sad about being forever limited to a paltry 100kWh and those GLACIALLY SLOW 2.3 second sprints to 60 that also happen to beat every production gasoline car ever made, lol.)
puddnhead profile picture
The main point of the 2170 is supposedly reduced cost, nothing to do with performance. Though some Tesla stockholders don't pay much attention to that, competent businessmen usually do.
arondaniel profile picture

Rarely is the question asked: is our Tessie Bears learning?

Larger batteries = better performance.
Larger batteries = better charging speed.
Larger batteries = better lifespan.
CoverDrive profile picture
arondaniel, when comparing 2170 to 18650 cells, the larger cells do not achieve better performance, charging speed, or better lifespan. The improvement is in manufacturing cost and battery pack cost due to fewer interconnects.

If you want to double the capacity of the battery pack (100 kWh to 200 kWh), you simply double the battery mass. Brute force engineering.
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