Introducing its Model 3 to the world in March 2016, Tesla Motors Inc. (NASDAQ: TSLA) announced that it received deposits for 373,000 vehicles, as of May 2016. Tesla lost $283 million in the first quarter of 2016 on sales of 14,810 vehicles. Losses every since then has continued to mount as doubts surround CEO Elon Musk's claims that the electric vehicle (EV) manufacturer can turn a profit.
Promises to deliver enough vehicles to meet demand has fallen short for years. Furthermore, reliability and safety issues plague the EV manufacturer as its vehicles sit dead last in repair trips per 100 cars among major auto manufacturers from 2013 through 2015. As of 2018, there's not only delivery issues but also quality control
GAAP vs Non-GAAP Metrics
Musk’s financial creativity extends to financial reporting, as Tesla prefers to focus on non-GAAP methods rather than GAAP standards. In a February 2016 communication to shareholders, the company focused on a novel financial measure known as core operational cash flow, a pro forma methodology that adds cash from leasing company sales to cash from operations.
The result was a positive $179 million, as opposed to GAAP measures of free cash flow at negative $441 million for the fourth quarter of 2015. The Securities and Exchange Commission (SEC) requires that companies focusing on non-GAAP metrics provide comparisons to GAAP methods, but Tesla omitted this step in its fourth quarter letter.
As of Aug. 2018, Musk said Tesla was to post a profitable second half to 2018. Even still, the company posted a $3.06 loss per share. The company has been raising capital to fund production and capital expenditures (CAPEX). This has left a large debt overhang. The company had just $1.4 billion in cash as of 2Q 2018, excluding customer deposits. In Nov. 2018, it has a $230 million convertible bond payment. Then there's a $920 million bank loan due in March 2019.
Sales, Earnings and Operating Losses
With the 2016 launch of its Model X, Tesla exhausted more than $400 million in cash per quarter through 2015 before a single unit of the sports utility vehicle was delivered. Actual sales of the Model X came in at 13,120 for 4Q 2017, while the Model S made up the balance of the 15,200 vehicles. As sales failed to meet expectations, 2017 fourth-quarter net loss of $3.04 per share (non-GAAP). Its GAAP loss $4.01.
Vehicle Concerns and Competition
Tesla vehicle owners relayed a plethora of issues involving design and build quality. This includes malfunctions with the drivetrain and charging equipment. Tesla owners noted that response and repair time exceeded expectations, but, as the vehicles age, mechanical failures outside of the warranty period project significant expense for consumers.
In an Aug. 2018 note, UBS said that the Model 3 would remain unprofitable, even with the Long Range battery pack. UBS says it’ll be losing $5,900 per car. That’s at the base model price of $35,000. The Model 3 is Tesla’s version of the electric car for the masses.
With various delays to production, many EV buyers may opt for the Chevy Bolt or other competitors rather than wait months or years to take delivery of Tesla's lower-priced offering. This shift of allegiance could make its debt obligations more difficult to service.