Tesla's Autonomy Investor Day Monday received somewhat of a collective shrug from the market Tuesday. Despite promises of a robotaxi fleet and cars with a net present value of $200,000, the stock is only up a touch at pixel -- 0.88 per cent to $264.80.
Much has been written about the investor event in the past 24 hours, including in the sacred salmon pink of the FT, but there's another angle to the themed showcase which has been less touched upon: further muted cash flow guidance from Tesla.
During the four-hour sesh, which largely explored Tesla's new technology, Elon Musk had this to say about the cash flow cost of launching a new fleet of brainy cars (transcript courtesy of Sentieo):
Well, we're aiming to be approximately cash flow neutral during the fleet pullout phase. And there, I expect to be extremely cash flow positive once the robotaxis are enabled, but I don't want to talk about financing round. It's difficult to talk about financing rounds in this venue, but I think we'll make the right moves. I think we'll make the moves we think we should make, yes.
He later clarified following another question from an attendee:
No, I just think between now and when the robotaxis are fully deployed throughout the world, the sensible thing for us is to maximise rates and drive the company to cash flow neutral. Once the robotaxi fleet is active, I would expect to be extremely cash flow positive.
So no significant cash flow until at least the end of 2020, when Tesla hopes to launch its self-driving taxi fleet offering. In last quarter's update, Tesla promised to generate positive free cash flow after the first quarter (results due tomorrow), so this does represent a change of expectations -- "neutral" is different to "positive" right? Even if when cash flow does turn positive it will be positive in the extreme.
And extremely positive cash flows might come even later if pesky regulators slow down the unstoppable march to autonomous, which analysts at Needham, Goldman Sachs and Morgan Stanley all cite as a potential blockage for Tesla in notes Tuesday.
For instance, here's Adam Jonas of Morgan Stanley:
It is our understanding that robotaxi fleet deployment will ultimately be rolled out on a city-by-city basis in co-ordination with local transport authorities and other regulatory bodies. Tesla’s autonomy investor day did not provide any specific details of such plans at the metro level. We note that moral/legal/regulatory variables represent an impediment for all companies with plans to deploy autonomous fleets at scale
There's also the potential for an internal delay to the roll out. Which given Tesla's proclivity for over-promising, is not out of the question.
What this means for this stock-du-jour is anyone's guess. Goldman took the opportunity to downgrade its earnings-per-share for 2019 from $1.88 to $0.89, but somewhat bafflingly kept its price target of $210. Others were equally cautious. RBC — price target $200 — said it has "doubts on proposed timing” of the launch, while Needham believes that, while impressed by Tesla's demonstration, its technology does "not offer a sustainable competitive advantage over other auto OEMs, as self-driving / ADAS technology will be made available by chip, software and Tier-1 suppliers”.
First-quarter earnings are due after the bell Wednesday. Expect more clarity about future profitability and cash flows then. And please, no bone-headed questions or it'll be YouTube's turn, and YouTube analysts are not quite as reliable as they used to be.
Tesla declined to comment for now. We will update the post if they send anything later.
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