BACK IN THE RED

Elon Musk admits Tesla won’t be profitable in the first quarter

Hard decisions.
Hard decisions.
Image: Reuters/Noah Berger/File Photo
We may earn a commission from links on this page.

After Tesla announced its $35,000 Model 3 today (Feb. 28), CEO Elon Musk cautioned that the electric-car maker was not going to be profitable in the current quarter. During a call with journalists, Musk said, “We do not expect to be profitable in Q1, but we do expect to be profitable in Q2.” The news sent the stock down about 3% in after-hours trading. 

The announcement directly contradicts Musk’s previous statements just a few weeks ago. On a Jan. 31 earnings call, he told investors, “I’m optimistic about being profitable in Q1,” according to a transcript from Sentieo. “Not by a lot, but I’m optimistic about being profitable in Q1 and for all quarters going forward.” The company’s departing CFO Deepak Ahuja reiterated this, saying that even in scenarios with lower volumes and pricing Tesla had a “good shot” of being profitable going forward.

But financial realities were apparent during today’s Model 3 announcement. Musk spent a good portion of the time talking about how the company was cutting costs to be able to hit the $35,000 price point. Tesla is now moving entirely to online sales, turning some of its stores into showrooms and galleries while shuttering others and laying off retail staff. Musk noted other expenses associated with the company’s upcoming China factory and logistics.   

“This is the lowest price we could possibly sell this car,” he said. “It’s excruciatingly difficult to make this car for $35,000 and still be financially sustainable. Hence the unfortunate need to rescue headcount.” Musk said refining Tesla’s production methods was a “game of pennies” as it sought to slice costs anywhere it could.

The $35,000 Model 3 will be as cheap as it gets for now. A lower price for the Model 3 or any new Tesla model will be at least three years away due to the challenges of overhauling Tesla’s manufacturing methods to reduce costs further, said Musk. That likely leaves Tesla with razor-thin margins as it expands beyond the luxury segment.  When asked about the profit margin on the new $35,000 offering, Musk responded, “Yeah, we’re not going to answer questions like that.”