Tesla Stock Drops After Elon Musk Projects a Loss — Is Now a Good Time to Buy?

Elon Musk said he didn't expect Tesla to be profitable in Q1.
  • Tesla shares dropped after the company’s CEO, Elon Musk, revealed he doesn’t think first quarter 2019 will be profitable.
  • Tesla also plans to lay off workers and close down stores to cut costs, while at the same time reducing the price on its Model 3.
  • With all these changes, investors might be wondering what to do about Tesla stock.

Tesla shares dropped during after-hours trading in response to Elon Musk, the company’s CEO, saying on Thursday, Feb. 28, that he does not expect a profitable first quarter 2019. Tesla shares were down more than 8 percent as of Friday morning.

“Given that there is a lot happening in Q1, and we are taking a lot of one-time charges, there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable,” Musk said.

Related: Is Elon Musk the Disruptor the Car Industry Needs?

Tesla Layoffs and Price Cut

Musk also laid out plans for a restructuring within Tesla. The company is planning store closures and worker layoffs, with an emphasis on retail workers. This means cutting average vehicle costs by 5 to 6 percent.

Not only that, Tesla also plans to cut the price of its Model 3 down to $35,000. This announcement follows on the heels of Consumer Reports withdrawing its recommendation of the Tesla Model 3 on Feb. 21. Owners had complained there were issues with the car’s paint, trim and electronics. Although the price of a Tesla vehicle is comfortably near the average price of a new car, it might not help the company in the face of America’s continued disinterest in car buying.

Read: 11 Troubles Tesla Faces If It Wants to Succeed

Is Now a Good Time To Buy Tesla Stock?

Whether or not you like Tesla as an investment probably has a lot to do with what type of investor you are. The stock has long been a growth investor’s dream and a value investor’s nightmare.

If you do believe that Musk will ultimately turn the corner, it might still be worth buying the stock. Rapidly growing revenues — last year’s $21.5 billion in sales is over five times the figure for 2015 — should make it clear that if the company can swing consistently into the black it might be well worth a buy at this point.

Find Out: How Much Is Tesla Worth?

However, it’s also hard to say just how much more valuable Tesla’s stock can reasonably be. If you start to compare Tesla to some of the competition, the stock doesn’t look as rosy. Tesla’s PS ratio of 2.43 is eye-poppingly large when placed against GM’s 0.37 and Ford’s 0.22, and those two car companies sold 8.4 million and more than 4.6 million globally in 2018. Tesla, meanwhile, is projecting production levels to be 360,000 to 400,000 for 2019. Put that in the context of Tesla’s over $50 billion market cap compared to about $35 billion for Ford and about $55 billion for GM and plenty more-traditional investors might be left wondering how much room the stock actually has to keep rising.

So, if you really believe in Elon Musk and the future of the electric car, you might see the rapidly growing revenue as a sign that things are still on track, but if you’re a more traditional value investor, the comps to other American car makers are likely going to scare you off.

Check out Elon Musk’s essential tips for aspiring entrepreneurs.

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Joel Anderson contributed to the reporting for this article.