Tesla (TSLA) Crashes on Slashed Production and Revenue Forecasts
Shares of electric car maker Tesla (TSLA: Charts, News) skidded out this week, after CEO Elon Musk slashed the company's fiscal 2012 revenue guidance due to the lower-than-expected production rate of its eagerly awaited Model S. Analysts had been expecting the Model S to generate approximately 90% of Tesla's revenue this year.
To make matters worse, Tesla then announced a secondary offering, diluting existing shares to generate more capital. This new offering raises concerns with investors regarding the health of the company's finances. Since going public in 2010, the company has yet to generate a quarterly profit. Lastly, Tesla announced that it would have to renegotiate its repayment schedule of a loan taken from the U.S. Department of Energy, due to existing loan covenants being breached. These factors alarmed investors, who sold off the stock heavily on Tuesday, causing a 10% intraday plunge. Daily Chart
Tesla originally anticipated producing 5,000 cars for the year, with a bearish minimum of 2,700. Prior to Tesla's announcement, analysts at Morgan Stanley (MS
) had already cut estimates on Tesla, forecasting that its production rates were only sufficient to produce a maximum of 3,250 cars, with a more realistic forecast of 2,250 cars for 2012. Due to these restrictions, Elon Musk reduced Tesla's 2012 revenue guidance from a range between $560 million to $600 million down to a range between $400 million and $440 million. Tesla blamed manufacturing inefficiencies and delayed supply problems for the lowered production rate. The slower delivery of vehicles is expected to drive margins into the negative range, between negative 15% and 18%. Tesla hopes that margins will become positive by the fourth quarter of 2012 after a planned cost reduction program takes effect. Gross margin for fiscal 2013 is forecast at a positive 25%. Tesla breached its loan covenant with the DOE due to its hefty Debt/EBITDA ratio. As a requirement for the loan, Tesla was required to maintain this ratio at a maximum of 6.5. EBITDA is now forecast to be negative in the foreseeable future, and will end 2012 with a -1.1 Debt/EBITDA ratio. As a result, Tesla is required to renegotiate the covenant with the DOE, which postponed the payment requirement between October 2012 and February 2013, but accelerated the subsequent repayments. This is the fourth time Tesla has had to rework the loan agreement, following similar incidents in June 2011, February 2012 and June 2012. To date, Tesla has fully drawn from the DOE's $465 million loan program. To generate enough capital to maintain its required debt ratios, Tesla was required to make a secondary share offering, selling an additional 4.34 million shares, worth $128.3 million, via underwriter Goldman Sachs GS. CFO Deepak Ahuja stated that Tesla would be able to pay back the DOE loan in less than ten years, if it become profitable "ahead of schedule." A DOE spokesperson also spoke up for Tesla, stating, "Tesla has always made loan payments in full and on time." However, Tesla bulls believe that the stock's dip is a long-term buying opportunity in what many view as the "Apple AAPL of Automakers." The bulls believe that Tesla shouldn't be compared to other electric cars from Toyota (TM
), Nissan, Ford (F
) or General Motors (GM
). Rather, they believe that Tesla offers a unique, premium experience - due to its high price range between $50,000 and $100,000 - and should be compared to luxury sedans from Porsche, BMW and Mercedes Benz. Despite 1,200 recent cancellations, reservations for new vehicles have risen 13% from 11,500 to 13,000 over the past three months, despite supply issues. Other News About TSLA Buy Tesla: Underlying Growth Story Still Intact
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Published on Sep 27, 2012
By Leo Sun