Why Tesla Stock Fell on Friday

 fool.com  05/17/2019 19:49:00   Daniel Sparks

Shares of electric-car company Tesla (NASDAQ:TSLA) fell on Friday, declining as much as 6.9%. As of 3 p.m. EDT, the stock was down 6.1%.

The stock's decline follows news on Thursday afternoon that the automaker was rolling out yet another cost-cutting plan in an effort "to become financially sustainable."

Tesla's Model S, 3, X, and Y
Image source: Tesla.

So what

In an email to employees, Tesla CEO Elon Musk said executives, including the CFO and Musk himself, would be reviewing every payment. The "hardcore" cost-cutting program, Musk said, is necessary because the company's first-quarter cash burn rate implies Tesla has just 10 months to break even.

This cost-cutting initiative comes shortly after the electric-car companyraised capital to build a better cash cushion after its cash position fell by $1.5 billion sequentiallyin Q1.

Now what

In Tesla's first-quarter shareholder letter, management said it expected to be free cash flow positive in Q2, but not profitable on a GAAP (generally accepted accounting principles) basis during the period. "As the impact of higher deliveries and cost reduction take full effect, we expect to return to profitability in Q3 and significantly reduce our loss in Q2," management forecast.

Page 2

Shares of electric-car company Tesla (NASDAQ:TSLA) fell on Monday, declining about 6% as of 11:50 a.m. EDT. The stock's decline comes as the overall market pulls back and as Morgan Stanley analyst Adam Jonas warns that more Teslas on the road could negatively impact the company's brand.

So what

The S&P 500 fell about 2.4% as of 11:50 a.m. EDT. Investors were spooked by the ongoing trade tensions between the U.S. and China. This overall market decline weighed particularly heavily on growth stocks like Tesla.

A woman taking a test drive in a Model S
Model S. Image source: Tesla.

In addition, Jonas warned that more Tesla vehicles on the road and more used ones available for sale may make new Tesla sales less compelling.

"Adding more cars to the road is a form of free advertising," Jonas said in a research note (via Barron's). But this means "there may be a simultaneous price to pay in terms of eroding scarcity value."

Now what

Because demand has often outpaced supply for Tesla in the past, scarcity marketing has previously played a key role in creating buzz. But word-of-mouth marketing as more Teslas are delivered has also helped in the past.

In the company's most recent quarterly update, management seemed confident in the demand for its vehicles, reiterating guidance for total deliveries in 2019 to rise 45% to 65% year over year.

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