Is Musk Panic-Cutting Expenses Because Tesla Is Going To Miss The Quarter Again?

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About: Tesla, Inc. (TSLA)
by: Anton Wahlman
Summary

Tesla’s CEO writes to its employees that “hard-core” measures must be taken to control cost. Why? The company has only 10 months of cash left, he wrote.

It's becoming very clear that the $2.2 billion cash balance as of March 31 was a highly window-dressed number.

I'm showing the quarter-to-date sales numbers from two of Tesla’s best markets in Europe. The numbers are way behind what's needed to make the quarter’s guidance.

However, as with last quarter, there's still hope for Tesla if it can deliver approximately 80% of its sales in the second half of the quarter.

Barring such a huge increase in sales for the second half of the quarter, I estimate that Tesla will deliver 74,000 units for Q2 - a 22% shortfall vs the company’s guidance.

We are just past the mid-point of the quarter and just as I was about to take a temperature check on Tesla’s (TSLA) progress, we get a report about CEO Elon Musk’s internal email, in which he's implementing radical and seemingly panic-oriented expense control measures: Tesla CEO Elon Musk launches new "hardcore" cost-cutting effort, will review all expenses. He says that the company is so strapped for cash, that it might have lasted only 10 months otherwise:

“This is a lot of money, but actually only gives us about 10 months at the Q1 burn rate to achieve breakeven!”

- Elon Musk

Wow. That’s not what investors heard or read in the Q1 financial results on April 24. There was no going concern language either in the 10-K filed in February, nor in the 10-Q filed on April 29. If Tesla only had ten months of cash left, one might argue that investors were misled.

Those comments echo what Musk said on the Axios-for-HBO television interview last November, in which Musk said that at some point earlier in 2018, Tesla had come within “single digit weeks” of “death.” Somehow, we keep hearing that Tesla has no need for more financing- until right after, when we learn that the company was weeks or months away from The End: Elon Musk says Tesla came "within single-digit weeks" of death.

Another way of describing what just happened is what Tesla said about its cash situation in Q1 - again, after the fact. It recorded $4.5 billion in revenue for the quarter, yet said that half of its car deliveries came in the last days of the quarter. It ended the quarter with $2.2 billion in cash.

Hmm, let me see: Half of $4.5 billion is $2.25 billion - barely above its ending cash balance. Does that mean that by March 20 or so, Tesla had under $100 million left in the bank? Perhaps not, but given what we have now heard, investors ought to demand to see the day-by-day bank balances. Tesla’s cash balance around March 20 may have been shockingly low.

The June quarter: Seemingly running way behind plan

We have April numbers from almost all countries in Europe, and we have the usual (and universally believed to be very accurate) U.S. sales numbers from Insideevs. That leaves us mostly with China as the major black hole, where we don’t have exact numbers. Still, that leaves us with a good picture of approximately how many cars Tesla sold in April: It’s right around 20,000 - all models combined, globally.

Then we add the countries where we get daily data. The two in Europe that matter in that category are Norway and The Netherlands. Let’s start with the quarter-to-date battery-electric vehicle sales numbers from Norway:

2019 Q2 Norway BEV

May 16

1

VW eGolf

1458

2

Tesla Model 3

1088

3

Nissan LEAF

823

4

BMW i3

678

5

Jaguar i-Pace

631

6

Audi eTron

611

7

Hyundai Kona EV

483

8

Hyundai Ioniq EV

395

9

Nissan e-NV200

329

10

Renault Zoe

324

11

Kia Soul EV

191

12

VW eUp

152

13

Tesla Model X

152

14

Kia Niro EV

138

15

Opel Ampera-e

92

16

Fiat 500e

69

17

Tesla Model S

53

Top 17

6209

Model 3 share

18%

Model S share

1%

Model X share

2%

Tesla share

21%

Jaguar share

10%

Audi share

10%

Source: EV registration statistics for The Netherlands, Norway and Spain

As you can see in the table above, Tesla has a very long way go to in order to match - let alone exceed - its Q1 Model 3 sales number of 6,123 units. 1,088 units at this point is not good: It’s mid way through the quarter, and all lights are flashing red.

Yes, I know - Tesla is expected to deliver a majority of the quarter’s units in the last month of the quarter. In March, it delivered 5315 units. If Tesla repeated that feat in June, then Q2 would indeed (slightly) exceed Q1 and Tesla would have redeemed itself - at least as far as unit sales are concerned (profits would be a different story).

What about The Netherlands? Here's where we stand mid way through the quarter for battery-electric vehicles (BEVs) sold in The Netherlands:

BEV

2019 Netherlands Q2

May 15

1

Hyundai Kona

571

2

Tesla Model 3

567

3

Kia Niro EV

521

4

VW eGolf

322

5

Nissan LEAF

307

6

BMW i3

249

7

Renault Zoe

164

8

Audi eTron

119

9

Hyundai Ioniq EV

102

10

Opel Ampera-e

40

11

Smart Four

31

12

Jaguar i-Pace

29

13

Nissan EV-200

17

14

Tesla Model X

5

15

Tesla Model S

3

TOTAL

3047

Model 3 share

19%

Model S share

0%

Model X share

0%

Tesla share

19%

As you can see in the table above, Tesla’s numbers are catastrophic when you consider that it sold 2,707 Model 3 units in Q1. At 567 now, there's a lot of wood to chop. However, when you consider that Tesla delivered 2195 Model 3 units in March, one might also say that a repeat performance would keep Tesla just on track to make Q2 into a flat quarter over Q1.

Two things should be clear from this analysis thus far:

  1. Measured linearly, Tesla is way behind in terms of “making” the June quarter. Mid way, it has delivered only a small fraction of the units that are needed in order to match the March quarter.

  2. Given how extremely back-end loaded the Tesla quarters are, especially in Europe, Tesla remains in the zone of where it's still possible for it to meet - or even exceed - the Q1 numbers. It’s just too early to say with any degree of confidence. However, the hill remains extremely steep and there's no room for error in production, logistics, or demand. Everything has to go 100% right for Tesla to be able to match Q1 sales in Europe.

Based on the numbers we have thus far, I put together the latest version of my Tesla Q2 sales model, with the Model 3 constituting the first country-by-country breakdown:

Model 3

April

May

June

Q2 2019

USA

10050

11000

12000

33050

Canada

550

600

800

1950

Germany

514

600

2000

3114

Norway

720

700

1800

3220

Netherlands

467

300

1400

2167

France

251

200

1200

1651

Switzerland

486

300

1200

1986

Belgium

111

100

600

811

Austria

153

100

600

853

Italy

149

100

300

549

Finland

87

50

200

337

Spain

51

50

300

401

Portugal

98

80

300

478

Luxembourg

40

40

40

120

Sweden

446

250

800

1496

Denmark

168

100

300

568

UK

0

0

1500

1500

Ireland

0

0

100

100

Australia

0

0

400

400

China

2000

2000

3000

7000

TOTAL

16341

16570

28840

61751

TOTAL Q2

April

May

June

Q2 2019

Model 3

16341

16570

28840

61751

Model S

1660

1625

2560

5845

Model X

1928

1785

2685

6398

TOTAL

19929

19980

34085

73994

As you can see in the table above, we basically have April and May at approximately 20,000 each, and then June at 34,000 - for a grand total Q2 number of 73,994. You can appreciate that this estimate is, has been, and will always continue to be, a work-in-process, as this model changes every single day - sometimes multiple times a day - in line with new data arriving from countries around the world.

At 73,994 units - let’s call it 74,000 for short - this Q2 estimate would represent a 22% shortfall from the mid-point of the quarter’s 90,000 to 100,000 unit guidance. 74,000 out of 95,000 is 77.9%. That’s still a better number than I thought approximately two weeks ago - but yet at the same time a huge shortfall compared to the expectations of many, including the company’s guidance and therefore its credibility.

The unit sales number is heavily influenced by pricing. It appears that Tesla has now instituted discounts over 25% in part of Europe, and 10%-20% in many other European countries: Alex_T on Twitter.

If my 74,000 unit sales number for Q2 turns out to be even close to correct, then it might explain why Tesla’s CEO is suddenly announcing- yet again - extreme expense control measures, and saying that the company had only 10 months of cash left. None of these are good signs for the company or its stock.

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.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GM and FCAU. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.