Tesla expected to forecast a loss for Q1 after Elon Musk warns of ‘very difficult' road ahead

Analysts are expecting a loss for the first quarter, a revised view after the firm's chief executive Elon Musk announced thousands of job cuts earlier this month.

Tesla's chief executive Elon Musk Source: Bloomberg

American automotive and energy company Tesla is expected to forecast for a loss for the first quarter when it reports its results on Wednesday.

Analysts are expecting a loss for the first quarter, at around US$2.5 million, after Tesla's chief executive officer Elon Musk warned of a 'very difficult' road ahead for the firm and slashed thousands of jobs. Before the announcement on job cuts on January 18th from Mr Musk was made, analysts had been expecting a profit of US$62.8 million for the given period.

The view is slightly more bearish than Mr Musk's, who had hoped for the firm to achieve a tiny profit for the quarter, supported by shipments of higher-priced Tesla Model 3 sedan variants to Europe and Asia.

In a letter to employees two weeks ago, Mr Musk said the firm would be cutting 7%, or more than 3,000 of its employees due to the challenges faced from growing its business. Mr Musk claimed a reason for the job cuts were because its ‘products are still too expensive for most people’.

In the letter, Mr Musk said the firm had achieved a 4% profit for the third quarter. Preliminary unaudited results have shown a profit for the firm for the fourth quarter, he added, but he did caution that the profit per car has dropped dramatically and earnings are likely to be less than the previous quarter.

Even though Tesla delivered more cars in the fourth quarter than in the third quarter, at 90,700 cars versus 83,775 cars in the previous quarter, analysts expect Tesla to face stiffer competition from competitors Jaguar and Audi’s lower priced offerings.

Tesla cars too expensive for most people, staff count more than the firm can support: Musk

Tesla revealed its sedan Model 3, the lowest-priced car model for Tesla a few years ago, and it was expected to have a starting price of US$35,000. Tesla is looking for ways to reduce the price of the Model 3, which costs around US$44,000 now, according to Mr Musk’s memo.

In the memo, Mr Musk said last year was the ‘most challenging in Tesla’s history’, with the carmaker rushing to produce 5,000 Model 3 sedans per week.

‘Tesla has only been producing cars for about a decade and we’re up against massive, entrenched competitors. The net effect is that Tesla must work much harder than other manufacturers to survive while building affordable, sustainable products,’ Mr Musk had said in his note to employees.

Last year, the firm grew its headcount by 30%, which was more than the firm could support. The firm has 45,000 employees.

Shares of Tesla have sunk by around 14% since the job cuts were announced on Jan 18. It now trades at US$296.38.

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