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Tesla shares soar on profit despite cash burn, production uncertainty

Tesla
A Tesla showroom in Miami.
(Joe Raedle / Getty Images)

Tesla Inc. earned its first-ever profit in the first quarter of a year, but the electric-car maker burned through cash again and backed off its guidance for how the rest of the year will shake out.

Adjusted net income of $227 million, or $1.24 a share, and revenue of almost $6 billion beat analysts’ average estimates. Tesla’s stock — already the biggest gainer on the Nasdaq 100 stock index this year — surged as much as 11% after the close of regular trading.

The advance that Elon Musk has engineered by producing and delivering more cars than expected early this year has positioned the chief executive to receive the first set of stock options from a pay package that set moonshot goals two years ago.

Investors are overlooking uncertainty about how soon the company will be able to resume production at its sole U.S. vehicle assembly plant in Fremont, Calif., where authorities have extended a stay-home order to the end of May.

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“It is difficult to predict how quickly vehicle manufacturing and its global supply chain will return to prior levels,” Tesla said in the statement. “Due to the wide range of potential outcomes, near-term guidance of net income and free cash flow would likely be inaccurate. We will again revisit our 2020 guidance in our Q2 update.”

During the debut quarter for the new Model Y crossover, automotive gross margin improved to 25.5%, the highest in a year and a half. While Tesla stopped short of restating its forecast for deliveries to “comfortably” exceed 500,000 vehicles this year, the company said it believes it can achieve industry-leading operating margins and profitability.

“Gross margin was mostly the thing that sticks out to me on the positive side,” Ben Kallo, an analyst at Robert W. Baird with the equivalent of a hold rating on Tesla, said by phone. “On the question-mark side, I have to wonder why they didn’t talk about demand at all.”

Although Tesla suspended production at its Fremont factory last month, it managed to build about 14,000 more vehicles than it handed over to customers in the quarter. Inventory build-up led the company to burn through about $895 million in cash during the period. Tesla still ended March with $8.1 billion on its balance sheet after raising money through a stock offering in February.

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Tesla Chief Executive Elon Musk advocates for the U.S. to reopen amid the coronavirus, hoping his California plant will start back up soon.

Musk, 48, will postpone initial deliveries of Tesla’s Semi truck again to 2021 — roughly two years later than initially planned — as the company prioritizes starting production of the Model Y crossover in Shanghai and building a factory in Germany, where it aims to start output in the middle of next year.

Tesla boosted profits in part by increasing revenue from regulatory credits to $354 million. That’s up 64% from a year ago and more than double the sales in the fourth quarter.


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