Tesla Motors, Inc. TSLA is all set to unveil the much-awaited Model 3 later today. The excitement level among Tesla fans is palpable. Analysts project that pre-orders may surpass 100,000 units in the first few weeks.
While such events generally pull up Tesla’s stock, the upturn is often short-lived. This Zacks Rank #3 (Hold) stock is highly volatile and over-valued. The company currently has a poor Value and Growth Score of “F” and “D”, respectively, although it fares well with regard to Momentum, with a Score of “B”.
Further, Tesla currently has a VGM score of “F”. Here “V” stands for Value, “G” for Growth and “M” for Momentum, and the score is a weighted combination of these three scores. However, it is important to keep in mind that each Style Score carries a different weight for the calculation of the VGM score.
Tesla faces several fundamental problems, the most prominent among them being consistent losses and high expenses.
Long-Term Trend of Losses
Despite increasing sales, Tesla remains a loss-making company. In each of the quarters and full-year 2015, Tesla reported significantly higher net loss on both adjusted and reported basis, compared to the corresponding quarters and full-year 2014.
Moreover, at an industry conference in Jan 2015, CEO Elon Musk revealed that the company may not achieve net profits until Model 3 enters full-scale production in 2020. Prior to that, the electric carmaker may attain profits after excluding special items. The losses are expected due to the significant investments made toward developing new vehicles and technologies, and the establishment of a retail network.
Rising Operating Expenses
Tesla is investing heavily in increasing production capacity, the development of Model 3, the Gigafactory construction and expansion of sales, services and Supercharger infrastructure. Both research and development (R&D), and selling, general and administrative (SG&A) expenses have been rising over the past few quarters.
In the first quarter of 2016, operating expenses are expected to increase marginally from the fourth quarter of 2015, as the company focuses on expense management. For 2016, operating expenses are anticipated to rise by 20% due to development expenses related to Model 3 and continued expansion.
Moreover, capital expenditure is estimated to be around $1.5 billion in 2016 to support cell production at the Gigafactory, installation of Model 3 vehicle production machinery, opening of about 80 retail locations and service centers, and energizing about 300 new Supercharger locations.
Weakening Cash Position
The high expenses and losses are taking a toll on Tesla’s cash position as well. The company’s cash and cash equivalents declined to $1.20 billion as of Dec 31, 2015, from $1.91 billion as of Dec 31, 2014. Meanwhile, cash outflow from operating activities surged to $524.5 million in 2015 from $57.3 million in 2014.
Bottom Line
While Tesla’s stock has been a market favorite in the past, its high valuation and inherent issues have made investors wary over the past few months. The stock, which recorded 48.17% and 9.44% gains, respectively, in 2014 and 2015, has lost nearly 5.47% so far this year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment