With $35k Model 3 Finally Available, Tesla's Musk Warns of a Financial Rough Patch

Is the long-awaited, stripped-down $35,000 Tesla Model 3 profitable? Company CEO Elon Musk won’t say, brushing off the question during a late Thursday conference call.

“Yeah, we’re not going to talk about that. Next question,” said Musk, who last fall warned that releasing the lower-priced car prematurely could sink the company. The nearly three-year wait period for the 220-mile electric sedan saw a constantly evolving end date, though the anticipated March deliveries jibes with Musk’s October prediction of four to six months.

What doesn’t jibe is Musk’s Thursday admittance that, after two profitable quarters, his company will likely sink back into the red.

Less than two months ago, Musk said he was optimistic for a profitable first quarter of 2019, as well as “all quarters going forward.”

That optimism has since dimmed, with Musk telling journalists last night, “Given that there was just a lot happening in Q1, and we’re 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.” He added, “But we do think that profitability in Q2 is likely.”

Yesterday also brought news of the automaker’s move to online-only sales, with its retail stores turned into galleries, service centers, or perhaps closed. Again, the potential for job losses was something Musk preferred not to mention.

“That’s not today’s topic,” he said when asked about further layoffs. In a memo sent to employees last night, Musk warned of job cuts in Tesla’s sales and marketing divisions.

As for the public’s desire for a spartan, 220-mile Model 3 available only in black (any other paint shade will set you back at least $1,500), Musk said he wasn’t sure how many customers might spring for one. Spend two nanoseconds on “Tesla Twitter,” and you’ll be bombarded by claims that said demand is drying up faster than the Aral Sea, but accurate info on Model 3 orders is not an easy find.

JMP Securities analyst Joseph Osha told The Street “we believe that surge of late 2018 demand as buyers rushed to catch the full [federal EV tax] credit has created a hole in Q1 demand that Tesla is still working to figure out.”

Edmunds analyst Jessica Caldwell, speaking to the Los Angeles Times, said the entry-level car might have made a bigger splash had it arrived earlier. “If this model had come out when the Model 3 first launched and passion for Tesla was at its peak, shoppers might have given more latitude,” she said. “But the expectations have been set and it’s likely going to be a tough sell moving forward.”

Given that Musk won’t say if the standard model has a profit margin, it’s unlikely he’s worried about meager early sales.

While the online-only gambit will reportedly allow Tesla to drop prices by an average of 6 percent (as well as sell cars in more markets), online critics howled over the company’s plan to offer full refunds to buyers who return the car after a week, even with 1,000 miles on the odometer. The offer seemed ripe for both abuse and profit loss, they claimed.

[Image: Tesla]