Tesla eked out a small fourth-quarter profit to close 2018, but fell short of Wall Street estimates. Now it faces the difficult task of sustaining profits while facing a major debt payment amid slowing demand for pricier versions of its electric vehicles.
Palo Alto, California-based Tesla posted net income of $139.48 million, or 78 cents per share, from October through December. It reported two straight quarterly net profits for the first time since going public in 2010.
Excluding one-time items including stock-based compensation, Tesla made $1.93 per share, but analysts polled by FactSet expected $2.20.
For the full year, the company lost $976.09 million, or $5.72 per share. Without one-time items, the loss was $1.33 per share, better than estimates of $1.24.
Fourth-quarter revenue more than doubled from a year ago to $7.23 million, beating estimates of $7.12 billion. The company's cash position improved by $753 million at the end of the year to $4.28 million, despite repaying $230 million in convertible notes. It had $9.4 billion in debt at the end of the year, a slight improvement over 2017.
The quarterly profit was less than half of the $311.5 million the company earned in the third quarter.
Tesla wrote in a letter to investors Wednesday that it expects to deliver 360,000 to 400,000 vehicles this year, a growth rate of 45 percent to 65 percent compared with 2018. It expects profits in each quarter of 2019.
Shares of Tesla, which rose nearly 4 percent Wednesday, fell nearly 2 percent in after-hours trading to $303.01.
The difficulty of making and selling large numbers of cars at a profit is now real for Tesla, which earlier this month cut 7 percent of its workforce in an effort to make the mass-market Model 3 more affordable. In addition, on Jan. 2, Tesla cut its prices by $2,000 per vehicle, acknowledging that the pending expiration of a $7,500 federal tax credit for its electric cars will hurt sales. The credit is gradually being phased out for Tesla by the end of the year.
"The $2,000 price cut and talk about having to lower cost further as federal tax incentives subside confirms our view that the bulk of demand is at a lower price point that Tesla can't access yet profitably," RBC Capital Markets analyst Joseph Spak wrote in a recent note to investors.
Analysts suspect that Tesla will swing between profits and losses in the future as it tries to bring Model 3 costs under control. The company expects to sell more cars in Europe and China, which should help the bottom line.
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"Things really aren't going to get any better for Tesla in the U.S. than they did at the end of 2018," Jessica Caldwell, executive director of industry analysis for the Edmunds.com car pricing site, wrote in an email. "Tesla's product lineup is starting to get stale, and now thanks to the elimination of the federal tax credit, buying one has never been more expensive."
Edmunds provides content, including automotive tips and reviews, for distribution by The Associated Press.
In addition to fighting costs, $920 million in Tesla notes come due on March 1. Half the debt could be converted to stock, but the share price would have to rise more than 15 percent for that to happen. So Tesla either has to pay in cash or refinance the notes.
"We have sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019," the company's statement said.
Tesla expects its restructuring actions to cut costs by $400 million per year, but said its first-quarter earnings would have a one-time restructuring cost. A gap between production and deliveries will create a "temporary but predictable" dip in revenues and earnings for the first quarter, it said.
Michael Ramsey, an analyst with Gartner, said even if Tesla isn't successful cutting costs and selling more Model 3s, its reckoning is a ways into the future. The company, he said, has strong brand value and a unique ability to tap markets and big investors for money.
"I'm not a believer that they are on the edge of a cliff right now," Ramsey said. "I think it's more likely that they will kind of lurch along, bouncing between big losses and occasional profits into the foreseeable future."
