Explaining The Big Tesla Sell Off

Tesla (NASDAQ: TSLA) stock has declined by close to 30% since early April, currently trading at levels of around $200 per share. While there are a lot of moving parts to the Tesla story at the moment, below we try to spell out some of the key reasons for the decline.

View our interactive dashboard analysis on Tesla’s Cash Flow, and Outlook for 2019 Cash Levels You can modify our key forecasts and arrive at your own estimates for the company’s cash flows for the next two quarters. In addition, you can see more Trefis Consumer Discretionary company data here.

Demand Growth For Tesla Vehicles Appears To Be Cooling Off

• Over Q1, Tesla deliveries fell 30% QoQ to 63k units, with sales of the premium Model S & X falling 56% to ~12k units.  (related: Why are Model X and S Deliveries Declining?)
• Model 3 shipments also declined by about 20% QoQ.
• While Tesla attributed the decline to logistical issues relating to the scale-up of the Model 3 in the E.U. and China, it’s possible that U.S. demand growth is cooling as well, following the reduction of the Federal tax credit.
• Although the company indicated that it would deliver between 360k to 400k vehicles for the full year, this could be a long shot in our view.

Tesla’s Tough Financial Position

• Tesla’s burned through over $900 million in cash (free cash flow) in Q1 2019.
• It also paid off a convertible note that was due, causing its cash and cash equivalents to drop to about $2.2 billion.
• This forced the company to raise about $2.7 billion by selling new stock and issuing debt earlier this month, contradicting its stance over 2018 that it didn’t need any further capital infusions.
• While we expect the cash burn rate to moderate going forward, driven by stronger shipments and a more aggressive cost-cutting program, it’s likely that cash flows will remain negative in the near-term.

A Re-Escalation of the U.S.-China Trade War Raises Concerns

• The trade war between the U.S. and China has re-escalated, after the U.S. raised tariffs on Chinese goods, prompting China to retaliate, raising taxes on many American imports.
• While automobiles have been left out from the list of goods that China will impose its tariffs on, it’s unlikely that the respite will last long.
• This has potentially spooked investors as China is Tesla’s second largest market (close to 10% of 2018 sales).
• While Tesla is in the process of setting up a vehicle and battery factory in China, its demand in China could still potentially be hit by anti-American sentiment if the trade war continues.

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