I had the pleasure of participating in a live blog of Tesla's (TSLA) earnings last night on TheStreet.com with Real Money contributors Eric Jhonsa and Anton Wahlman. We had to -- as television sports broadcasters would say -- "fill" for about 45 minutes because Tesla did not release its shareholder letter until about 5:15 pm, or 15 minutes prior to the commencement of the company's 5:30 pm conference call.
As someone who followed auto companies for 11 years as a sell-side analyst I cannot put into words how frustrating it is to have insufficient time to analyze a company's financials before an earnings call. Well, in Tesla's case, this delay seemed a well planned tactic, because the company's first quarter figures were, quite frankly, terrible. The company's pliant sell-side analysts asked few probing questions about Tesla's dreadful lack of profitability in the March period during the Q&A session that concluded the call.
Tesla's headline figures of $4.52 billion of revenues and a GAAP loss of $4.10 per share in the quarter were well below Street expectations, but those figures only tell part of the story of just how miserable the first quarter was from a profitability standpoint. Also, Tesla management reversed earlier guidance of profitability for the final three quarters of 2019 and is now calling for a loss in the second quarter as well.
As always, though, the devil is in the details, and now that I have sufficient time to review Tesla's numbers a few points jump out.
Negative EBITDA. That's right, Tesla produced negative EBITDA in the first quarter. Forget about free cash flow and EPS, the company's $57 million in negative EBITDA (a good proxy for cash flow from operations) makes me wonder if this entity is even -- to use Elon Musk's favorite word -- sustainable. Tesla's loss on the EPS line puts to rest any hope that the company will be added to the S&P 500 this year (four quarters of consecutive profitability is one of S&P's criteria for inclusion), but the bigger issue here is Tesla's loss-making. I would venture to guess that none of the 505 companies that actually are in the S&P 500 produced negative EBITDA for the first quarter of 2019. Also, I don't believe there are any other car makers in the world that produced negative EBITDA In the first quarter, certainly none of the top 20 players did.
Capex. Tesla reported only $280 million in capital expenditures in the first quarter, under spending its forecast annual rate of $2.5 billion by about $350 million. While Tesla management has now lowered its 2019 capex guidance to $2.0-$2.5 billion, the first quarter's spend was still extraordinarily low for a growth company or for an auto company. Tesla is valued by the market as more of the former than the latter, but there is just no way to grow and create Musk's visionary dreams -- Model Y, Gigafactory Shanghai, Gigafactory 2 in Buffalo -- without injecting capital.
Capital raise. That leads to my final point, suggested by Musk's comment in regard to a question on the call from Bernstein's Toni Sacconaghi. Musk noted that there is "merit" to the idea of a Tesla capital raise at the present time. Any such raise involving equity -- whether in the form of a security convertible into equity or a straight stock sale -- would dilute current Tesla shareholders. Also, the company's balance sheet simply cannot handle more debt, with $10.5 billion still remaining on March 31st even after the March 1 maturity of $920 million in convertible notes and the coming draw-downs from the $522 million loan facility Tesla added from Chinese banks in the first quarter to fund Giga Shanghai. Major Tesla investors Fidelity and T. Rowe Price heavily reduced positions in Tesla in the fourth quarter, perhaps in anticipation of such a dilutive move. As someone who has been an analyst I can tell you that bearing the news of a major equity raise to clients whose positions will be diluted by such a raise is truly an unpleasant task.
So, that's the first part of my Tesla rant. I'll have more in my RM column tomorrow. For those who were so engaged as to participate in my live ranting on the blog last night (Eric did not rant, although Anton did contribute a few cutting one-liners at Musk's expense) I want to thank you again for being part of the TST ecosystem. We're not going to let "P.T Musk" -- as he has been dubbed by TST founder Jim Cramer -- pull the wool over the eyes of individual investors.
