Tesla Posts $702 Million Loss. Is This the End?
After two profitable quarters, Tesla Motors (NASDAQ: TSLA) is reporting a loss of $700 million for Q1 2019.
This $2.90 per share loss is being attributed to a sharp decline in model S and X output, contributing to an overall delivery drop of a ground-shaking 31%.
Though production of the Model 3, the car Elon Musk claimed would take Tesla to the next level by finally attacking the elusive middle-class market, rose by 3% from the previous quarter, deliveries of the flagship models managed to drop to just 12,100 units — less than half of the 25,000 unit per quarter run rate of the last two years.
Wall Street analysts, the same guys who were projecting adjusted profits of $6.75 per share for 2019 back in January, were not shocked considering the delivery figures, but the dismal numbers were even worse than most dared to predict.
Needless to say, this is not what diehard Tesla fans wanted to hear.
A Lot Can Change in 120 Days
After the heady days of late 2018, when analyst predictions were being handily beaten, this news puts a cloud over the 15-year-old company's future.
As of today, Tesla's cash and cash equivalents are down to $2.2 billion from $3.7 billion at the close of last year — a substantial bloodletting by any standards.
Despite all of this, Musk managed to stay positive during his conference call with analysts, stating that demand remains “quite solid, quite strong.”
Since bold predictions are the name of the game when it comes to the world's biggest EV maker, I figure I'll throw one into the mix as well.
This is the beginning of the end.
The problem isn't that the idea is bad. The problem is that the forces that are lined up against the California-based car manufacturer are simply too great.
David Versus a Team of Goliaths
Just about every major car brand in the world — from American giants such as Ford and Chevy to Japanese powerhouses like Toyota and Nissan to the European luxury brands — is making major inroads in the EV market.
Even Ferrari, a company known for power, prestige, and the world's sexiest exhaust note, has openly stated plans to offer an all-electric super-car.
How can an upstart like Tesla possibly compete with such an onslaught of competition from brands with decades of established customer loyalty?
The answer: It probably can't.
Lacking the conventionally powered fallbacks that all the other brands still rely on as their mainstays, Tesla just might go down in history as the automotive industry's “little engine that couldn't.”
Yeah, I know, all of this sounds downright pessimistic and reactionary on my part.
A Light at the End of the Tunnel?
Progress happens despite temporary setbacks, and anybody refusing to accept it is doomed to sooner or later be relegated to dinosaur status.
Progress will happen. Of that there is no doubt. The only question is who will be the one to bring it? Who will help the EV tilt the market balance in its favor?
Given the commitments all the other major manufacturers have made, it now seems that the entire industry will, and not some single upstart with a flamethrower-wielding, rocket-launching CEO.
For Tesla, however, the problems go deeper than withering competition.
Thanks to a newly developed technology, the very motors that propel every Tesla product are now treading dangerously close to obsolete status.
The technology, which puts artificial intelligence in control of electrical charge management within the motor's coil, will likely go down in history as the first major evolution of the electric motor since its very advent.
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Enter the Smart Motor
The problem this solution addresses is a design flaw inherent in all current electric motors, from the tiny one in your wristwatch all the way up to the house-sized power plant driving today's massive cargo ships.
This design flaw is a trait inherited from the very first electrical motors, created by Michael Faraday himself, back in the 1820s.
Put simply, traditional electrical motors only achieve peak efficiency at one set engine speed. Move below or above this speed, and the ratio of torque output to power input wanes.
That limitation will soon be a thing of the past.
Referred to as dynamic power management (DPM) by its creator, a small Canadian tech firm, the innovation will make the new generation of electric motors more efficient, more reliable, and longer-lived.
Eventually, its presence in the market will force everyone to start playing catch-up, as traditional electric motors simply will not be able to compete.
This means companies like Tesla, and everyone else diving into the EV game, will have to license the tech from its creator, buy the creator outright, or attempt to come up with their own solution at the risk of a nasty legal battle.
Revolutionizing the Most Common Electrical Device in the World
The problem for Tesla, once again, is that unlike all of its major competitors, its entire line will be affected.
And with cash growing short, demand waning, and market share shrinking, that just could mean the end of the road.
I don't want to end this on a sour note, so I won't.
The company that created DPM is a tiny, relative unknown to anybody outside of the industry, but it's already public — which means you can own a piece of it today.
And since the EV market is just one prong of this company's business plan, the true prospects are so huge that they're hard to appraise with any level of precision.
This story just may wind up being bigger than Tesla itself, so I urge you to get the details now, before you start reading about it in the mainstream financial media.
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.
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