This article was first published on or about April 17, 2017, on my Seeking Alpha Marketplace site, where subscribers get early access to many of my articles. You can view these articles here: https://seekingalpha.com/author/anton-wahlman/premium-articles
Tesla (NASDAQ:TSLA) finished the fourth quarter of 2016 with 19.1% gross margin, and has seen its stock go from $180 to $300 in during little over a quarter based on things getting better -- not worse.
For a car company, what that means is that your prices are going up, not down. You'll be able to raise prices, not being forced to cut them.
Well, Tesla just cut the base price of the Model S by $7,500, or approximately 10%. Add in some additional standard equipment, and it looks more like 12%.
Now pair this with the 19.1% gross margin as the company's most recently reported such. We don't know about 1Q, but what does this tell you about 2Q margins? It tells me what from whatever level they turn out to be in 1Q -- probably higher than the fourth quarter's 19.1% -- they will probably go down again in 2Q.
Potentially significantly so.
Tesla is scheduled to report 1Q on May 3, 2017 -- although it provided the 1Q unit delivery number already in the first week of March, 2017, as usual.
Tesla had better be able to sell the market to an even higher level than already, on the prospects of the Model 3 soon, for the financials look to be cratering in 2Q based on this very negative gross margin outlook.
Speaking of the Model 3, I came across the oddest of information in this April 17 Bloomberg article by best-selling Musk biographer Ashlee Vance:
"He's going to offer to pay people who sent in deposits for the upcoming Tesla Model 3, if they cancel their orders."
What does that mean? Let's say you cancel your refundable $1,000 deposit on a Model 3. Tesla says it will refund your money immediately. Will this guy -- Doug Derwin -- give you a bonus on top of the $1,000 per car you get back? Will you get another $1,000 per car from him? That's how I read the sentence above. Please tell me if you have an alternative interpretation.
If I'm right about my interpretation -- and I may be completely misunderstanding what he's saying here -- this may the biggest threat to Tesla yet. It sounds absolutely crazy, but is worth watching. This guy is clearly willing to spend a fortune taking Tesla down, and this could be a most impactful tool.
Disclosure: I am/we are long GM, F, GOOGL, FB, NVDA.
Additional disclosure: At the time of submitting this article for publication, the author was long GM, F, GOOGL, NVDA and FB. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.