Tesla Will Make No Profit in 2014?

Today Tesla announced in its quarterly report that it lost nearly $50 million in the first quarter of 2014. We talked about Tesla and its future during the dinner with Mr. Jim Treece. The reasons are fairly simple: the accumulating cost of construction of the gigafactory battery plants and supercharger stations.

Although the situation of Tesla does not seem optimistic, I still believe the public should allow more time for the company to grow. Looking at the quarterly report, I think one upside is that Tesla produced 7,535 Model S sedans globally and sold around 6,500. People start noticing the presence of Tesla around, either on the streets or inside large malls. The report states that “we expect to be slightly free cash flow negative in 2014,” suggesting that Tesla projects negative free cash flow in the rest of 2014. However, it does not make it unprofitable because we usually talk about earnings instead of cash flows while thinking profitability. Looking at the earnings per share in Q1 we can see it is $0.12, which I’d say it is quite profitable. The way Tesla is operating its cash flow is totally fine since I think it is farsighted for companies to invest a lot of money into R&D. A problem, however, as mentioned during the dinner tonight, is how to increase its sales while increasing its service coverage at the same time. Although the official website says that customers can bring in their Tesla to its service center, there are only around 30 of them in the US. Therefore I think doing both things simultaneously it a huge challenge for Tesla but I am quite optimistic about the future of the electric car company.

Source:http://files.shareholder.com/downloads/ABEA-4CW8X0/3028218565x0x752463/4d500edc-fd71-4b5b-8b60-542f73d9c64e/Q1’14%20Shareholder%20Letter%20final.pdf