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Why Tesla Stock Was Slammed Today

By Daniel Sparks - Updated May 3, 2018 at 2:01PM

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Tesla's first quarter, featuring the company's worst-ever quarterly loss, took investors along for a bumpy ride fueled by the CEO's comments.

What happened

Shares of electric-car company Tesla (TSLA 3.10%) fell sharply on Thursday, declining as much as 8.6%. At 1:48 p.m., the stock was down 6.6%.

The stock's decline follows Tesla's worst-ever quarterly loss amid its costly Model 3 production ramp-up. In addition, some remarks from Tesla CEO Elon Musk during the company's first-quarter earnings call about why some particular types of investors might want to sell Tesla stock may have escalated bearishness toward shares.

A woman unlocks her Model 3 with a Tesla app on her smartphone

Model 3. Image source: Tesla.

So what

Tesla reported first-quarter revenue of $3.4 billion, up 26% year over year. But the company's loss per share widened to a worst-ever $4.19 -- wider than its $4.01 loss per share in its fourth quarter of 2017 and more than double its $2.04 loss per share the automaker reported in its year-ago quarter. 

A "slightly negative" gross margin on Model 3 sales during the quarter weighed on profitability, raising the stakes for Tesla to ramp up production of the important vehicle and achieve a higher gross margin.

In addition, Musk took time during the company's first-quarter earnings call, to tell investors focused on "short-term things" to avoid Tesla stock. "You should be focused on long-term things," Musk said. "We have no interest in satisfying the desires of day traders, like we couldn't care less. Please sell our stock and don't buy it."

Musk also noted that investors concerned about volatility "should definitely not" buy Tesla stock. "I am not here to convince you to buy our stock. Do not buy it if volatility is scary," Musk added. Musk's comments on the conference call with analysts were a major source of buzz, with the CEO taking heat for, among other things, cutting off two analysts who were asking questions during the call.  

Now what

Tesla said it expects Model 3 gross margin to be close to breakeven in its second quarter and highly positive in its third and fourth quarters. "Ultimately, the growth of Model 3 and the profit associated with it will help us accelerate the transition to sustainable energy even faster," Tesla said in its fourth-quarter shareholder letter. But to achieve this, Tesla will need to increase Model 3 production from a rate of about 2,000 vehicles per week at the end of its first quarter to its target rate of 5,000 vehicles per week in about two months.

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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