Tesla Inc. (TSLA - Get Report) founder Elon Musk might see some "merit" in raising capital to support his loss-making company, but a long-time critic of the controversial CEO thinks the group's latest earnings miss signals financial distress, not near-term profitability, for the clean-energy carmaker.
Gabe Hoffman, founder of Accipiter Capital and a vocal Tesla short seller, told TheStreet that Tesla's larger-than-expected first quarter loss of $702 million -- which came just months after Musk told investors the clean-energy carmaker would return to profit -- included a "staggering drop in total revenue" and misleading cash position that its flattered by customer deposits.
"Even after all the (forecast) cuts, even after we knew the delivery (figures) on April 3rd, Tesla missed consensus by over 10% on revenues," Hoffman said. "Analysts didn't factor in all the price cuts to move metal, which I've warned about repeatedly."
Tesla reported an adjusted loss of $2.90 on sales of $4.54 billion, compared to a FactSet consensus of $5.42 billion and an adjusted loss of $1.15 per share. Additionally, Tesla said it produced roughly 63,000 Model 3 vehicles in Q1, approximately 3% more than the previous quarter.
In an earnings release, it attributed the modest increase to supplier limitations, fewer working days and changes to the production process.
Tesla said yesterday it will likely remain in the red for the second quarter, but vowed to return to profit over the second half of the year and stuck to its forecast of delivering 360,000 to 400,000 vehicles over the course of the year.
Hoffman isn't convinced that's sustainable, given the company has reduced capital expenditures for seven consecutive quarters, to around $280 over the first three months of 2019, while burning through $919 billion in cash.
"Perhaps the operating cash burn will improve slightly in Q2, before dropping once again in Q3, due to the expiry of another $1,875 in federal tax credits," Hoffman noted, adding that "R&D expense cut to $340 million in Q4, the lowest in 6 quarters. This is not a sign of a growth company."
Elon Musk will try to control the narrative on the call
Mostly retail questions & very few, if any analyst questions
Only $2.2 B cash - $768 M customer deposits
= $1.432 B real cash
$3.25B current Accts payable
$9.78B total debt
Capex $280mm down 57% yr/yr $TSLA = TOAST— Gabe Hoffman (@GabeHoff) April 24, 2019
Musk told investors on a conference call Wednesday that there was "merit" to the idea of a capital increase, but noted that "I don't think capital has been constrained on our growth thus far and the type of those fund in fact, if there was a final constraint on growth would've faced capital before now."
"There's more work to do, and Tesla today is far more efficient operating organization than it was a year ago," Musk said. "We've made dramatic improvements across the board."
Hoffman, however, noted the weakening picture painted by Tesla's balance sheet, which shows $3.25 billion in accounts payable against receivables of just over $1 billion. Furthermore, Hoffman argues, the company's cash position is flattered by $768 million in customer deposits, which makes the true available figure closer to $1.4 billion than the $2.2 billion tally quoted in most media reports.
Adding in the group's total debt of $9.78 billion, Hoffman says, means that "Tesla's basic Quick and Current liquidity ratios are worse than General Motors (GM - Get Report) 6 months before it filed for bankruptcy nearly 10 years ago.
Canaccord Genuity analyst Jed Dorsheimer, however, has a different view, arguing that solid Q2 delivery guidance of between 90,000 and 100,000 vehicles, as well as hints towards a move to providing insurance products, were positive enough to boost his price target to $394 per share.
"While we await further details, we view anything that lowers the consumer's cost of ownership as a clear benefit for demand," Dorsheimer said.
Hoffman's view is starkly different.
"If a company is generating 37% less revenue, the amount of payables they owe suppliers & their amount of inventory should also decline big," he argues. "Unless the financial distress is truly severe & the company is delaying payments to suppliers."