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: Charts, News) 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: Charts, News), Nissan, Ford (F: Charts, News) or General Motors (GM: Charts, News). 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 The bull case for Tesla Motors. Tesla Cuts Revenue Forecast Due to Slow Model S Roll Out Dire news as Tesla slashes production and revenue forecasts. Other Stocks in the News Yum! Boosts Dividend by 18% Yum joins McDonald's in boosting its dividend. McDonald's Shares Moving Up After Announcing its Quarterly Cash Dividend Is McDonald's poised to pop back up to $100 per share? Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Sep 27, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

Posted in ...