Tesla braces investors for another quarter in the red

Key Points
  • Tesla executives cautioned investors on a quarterly call that the EV maker won't return to profitability until the second half of 2019.
  • Tesla is investing capital to start making cars in China, improve its vehicle deliveries and begin production of the Model Y, its crossover SUV this year, among other things. 
  • While Tesla has been cutting costs with restructuring and store closures recently, CEO Elon Musk told analysts, "There's merit to the idea of raising capital at this point."
Elon Musk
Mike Blake | Reuters

Tesla CFO Zach Kirkhorn braced investors for another quarter in the red during the company's first quarter earnings call on Wednesday.

In response to questions about challenges ahead for Tesla in 2019, Kirkhorn said:

"We did make pricing adjustments to our products in Q1 which puts pressure on margins, so that's part of what we will see in Q2. The teams are all working extremely hard and making terrific progress on improving the cost efficiency of the business without sacrificing growth. That, in combination with the efficiencies from 'unwinding the wave,' is where we feel we'll be comfortable returning to a place of profitability in Q3, once all those pieces are in place."

At the same time, Tesla's need for capital is growing. CEO Elon Musk and President of Automotive Jerome Guillen talked up its progress and plans to improve logistics, build a new battery and car plant in Shanghai, and start production of a crossover SUV, the Model Y, later this year. Guillen noted that Tesla won't begin production of its all-electric Semi until next year.

A senior technology analyst at Sanford C. Bernstein, Toni Sacconaghi, asked Musk whether Tesla plans to raise capital to support these and other ambitions.

"Given that you used up about $2 billion of cash in a quarter, aren't you potentially trying to go through a very thin space while trying to grow quickly, and be self-funding, which quite frankly, may be unrealistic? Why not raise capital? Why do you view that as something Tesla shouldn't or wouldn't do?"

Musk replied, "I don't think raising capital should be a substitute for making the company operate more effectively." He added that he does not believe capital has been a constraint on Tesla's growth so far, before finally acknowledging there may be merit to the idea.

"Tesla today is a far more efficiently operating organization than it was a year ago, we have made dramatic improvements across the board ,and so I think there is merit to the idea of raising capital at this point," Musk said.

Morgan Stanley's Adam Jonas asked Musk how important it is for Tesla to remain a publicly traded company, given all the alternative sources of capital it could tap into beyond the public markets?

Musk said, "It may surprise you, but I would prefer we were private. Unfortunately I think that ship has sailed."

Musk added, "Being public does feel like the price of the stock is being set in kind of a manic depressive way....It is a bit of a distraction at times, but I'm not sure what to do about it."

Musk had to pay a $20 million fine to the SEC last year after he spontaneously tweeted that he was considering taking Tesla private for $420 a share. Shares in Tesla shot up after that tweet, and the financial regulators halted trading. Musk and the SEC are still locked in negotiations over how the Tesla CEO can use social media to disseminate potentially material business information about Tesla.

Tesla explains loss during quarter