Tesla Q1 Loss Dents Musk’s Profitability Vow, and He Pledges a Fix

Elon Musk's declarations that Tesla Inc. had entered an era of sustainable profits turned out to be premature, as the electric-car maker began the year with a $494 million loss and rekindled concerns about its cash.

Tesla posted an adjusted loss of $2.90 a share for the three months ended in March, missing analysts' average estimate for a $1.30 deficit. A record drop in quarterly deliveries snapped the company's two quarters-long streak of positive earnings.

Musk, Tesla's chief executive officer, assured investors in a quarterly letter that higher deliveries and cost cuts will help the company narrow its loss in the second quarter and return to profitability the following three months. He hinted ahead of the earnings results that Tesla may need to seek more funds to help finance a hugely ambitious pursuit: to deploy fully self-driving electric cars in a shared service next year.

Tesla shares rose 2.1 percent to $264.05 as of 5:30 p.m. Wednesday in New York, after the close of regular trading. The stock is down 22 percent this year.

Cash Status

Tesla ended March with $2.2 billion in cash and equivalents, down from $3.7 billion three months earlier. In addition to operating cash flow worsening relative to the previous quarter, a February debt payment -- the company's largest ever -- drained $920 million from its coffers.

The halving of a federal tax incentive for Tesla purchases starting in January dragged on U.S. demand in the quarter, and Tesla struggled to offset that drop-off by starting deliveries of the Model 3 sedan in Europe and China.

Also potentially putting a damper on results were were frequent price changes and a botched retail strategy shift that stoked confusion among employees and customers. Musk, 47, announced Feb. 28 that in order to afford offering a long-promised $35,000 version of the Model 3, Tesla was shifting all ordering online and closing down most of its stores. The company backtracked just 10 days later, saying it would only shut roughly half as many locations as planned.

Deposits Steady

Tesla finished the quarter with $768 million in customer deposits, holding fairly steady relative to the $793 million at the end of last year. While completing sales to consumers waiting on the Model 3 probably depleted that balance, this was tempered by $2,500 pre-orders for the Model Y crossover that Musk debuted last month and said will start delivering in the fall of next year.

During Musk's deep dive into the technology behind Tesla's Autopilot system and its plans for a fully autonomous robotaxi, the CEO reset expectations for future cash flow. Whereas the company had said in the past that it expected to be positive in every quarter beyond the first three months of this year, Musk said the goal is now to be "neutral" while Tesla is building up a fleet of self-driving vehicles.

When asked by an analyst how much the endeavor is costing Tesla, Musk replied: "It's basically our entire expense structure."

(Reporting by Dana Hull)