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Why Tesla Stock Fell on Friday

By Daniel Sparks – May 17, 2019 at 3:49PM

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Is yet another cost-cutting initiative a sign of trouble for the automaker?

What happened

Shares of electric-car company Tesla (TSLA 0.25%) fell on Friday, declining as much as 6.9%. As of 3 p.m. EDT, the stock was down 6.1%.

The stock's decline follows news on Thursday afternoon that the automaker was rolling out yet another cost-cutting plan in an effort "to become financially sustainable."

Tesla's Model S, 3, X, and Y

Image source: Tesla.

So what

In an email to employees, Tesla CEO Elon Musk said executives, including the CFO and Musk himself, would be reviewing every payment. The "hardcore" cost-cutting program, Musk said, is necessary because the company's first-quarter cash burn rate implies Tesla has just 10 months to break even.

This cost-cutting initiative comes shortly after the electric-car company raised capital to build a better cash cushion after its cash position fell by $1.5 billion sequentially in Q1.

Now what

In Tesla's first-quarter shareholder letter, management said it expected to be free cash flow positive in Q2, but not profitable on a GAAP (generally accepted accounting principles) basis during the period. "As the impact of higher deliveries and cost reduction take full effect, we expect to return to profitability in Q3 and significantly reduce our loss in Q2," management forecast.

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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