Shares of Tesla fell as much as 8 percent on Friday as the electric automaker is planning to shutter stores and reduce its workforce in an effort to curb costs. Additionally, CEO Elon Musk said Tesla would not be able to produce a profit in the first quarter of 2019.
ETFs to watch with the heaviest weightings in Tesla were affected, such as the VanEck Vectors Global Alt Energy ETF (NYSEArca: GEX)–down 0.23 percent, ARK Industrial Innovation ETF (NYSEArca: ARKQ)–down 0.53 percent and the First Trust NASDAQ Cln Edge GrnEngyETF (NASDAQ: QCLN)–down 0.48 percent.
Despite the negative outlook for profitability in the first quarter, Musk was more optimistic about the company churning a profit in the second quarter.
“Given that there is a lot happening in Q1, and we are taking a lot of one time charges, and there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable in Q1,” Musk said during a call with reporters on Thursday evening. “We do think that profitability in Q2 is likely.”
With the phasing out of its physical dealerships, the automaker is looking to use online sales as its primary driver.
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$920M Bond Payment Due
Tesla has a $920 million payment in bonds to make as pressures mount for Musk amid its declining cash reserves. In its 15-year history, Tesla has only been profitable for just three quarters.
In Q3 2018, Tesla made a profit of $312 million (about 4%), but capital expenditures were near the $2 billion level. With about $2 billion in cash according to a September 30 government filing, the company also holds about $9.8 billion in total liabilities and assets of $7.9 billion.
The $920 million bond payment due on March 1 includes convertible debt, so if the company’ stock is trading at or above $359.88, Tesla has the option to pay back the debt with stock as opposed to cash. The price of Tesla now currently stands at around $310, which means it needs to rally over 16 percent within the next couple of trading sessions.
The bond payment comes amid the Securities Exchange Commission (SEC) asking a judge to hold Musk in contempt for violating a previous settlement agreement, Musk took to Twitter to respond by saying that “Something is broken with SEC oversight.”
Tweets have placed Musk in hot water with the financial regulator–notably last year when he sent a tweet stating that he would like to take the company private, immediately causing intense reactions from investors and a surge in the electric car maker’s share price. As part of a $20 million fine settled with the SEC, Musk must get prior approval before sending tweets.
According to some analysts, this latest legal infraction could once again put the electric carmaker and Musk in a negative spotlight–something both could do without at the present time.
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