Financial markets are off to a good start today trying to stabilize after the worst week in two years for American equities. The tumultuous move in equities last week wiped $2 trillion from US. Tesla Inc. (TSLA) stock performance also took a beating at its worst week since July. The stock is trading around $316 at this writing, up 15% in the past 12 months. That compares with gains of 13% for the S&P 500 SPX, 20% for the Dow Jones Industrial Average (DJIA). 

The Auto Industry, Tesla & EV 

According to the latest sales data, the US auto industry has cooled off considerably with Americans keeping vehicles longer or purchasing lower-mileage used cars instead of new ones. Auto dealers have reduced prices and extended loans to 72 months or more to move inventory, but there is still an oversupply of new cars in the market. Crossovers, sport-utility vehicles (SUV) and pickup trucks are the most popular models making new car sales in the US. 

For Tesla, Model X is supposed to be its answer to the SUV popularity in the US. However, even CEO Elon Musk said Model X is too complicated to configure and produce. So this means Tesla is missing out on roaring SUV boom. Adding insult to injury, Consumer Reports magazine rates the Model X second to last in its ranking of 15 luxury midsize SUVs. 

For vehicle purchase, the deciding factor is still price (total cost of ownership, including resale value). Electric car prices are falling, but they still cost more than the gas counterpart due to their expensive batteries. With regular gas prices averaging $2.58 per gallon, it’s hard to justify the price premium of an electric vehicle (EV). 

Regarding resale value, according to Edmonds.com, “electric cars haven’t yet proven their durability, and buyers of used electrics are worried about battery costs.” This could be another reason to deter consumers taking the plunge into an EV instead of a traditional gas car. 

Many have debated when EV will take over the world. Well, here and now, at least not today nor in the near term. With this macro backdrop, how did Tesla as a company perform so far?

A Promise of “Positive Operating Income”

Tesla just released its fourth-quarter earnings last Wed posting its biggest quarterly loss ever in the fourth quarter — negative free cash flow of $(276.8) million and an adjusted EPS of negative $3.04 for the quarter. For the whole 2017, Tesla’s free cash flow (FCF) was negative $3.48 billion.