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According to Elon Musk, time for Tesla (NASDAQ: TSLA) betting on profits has arrived. In a recently written email that was obtained from EV news website, Electrek, Musk warned company employees that if Tesla’s profits don’t reflect significant growth – meeting market expectations – investors they will probably pump the brakes and send the stock plummeting.
In the email, Musk states:
If you look at our actual profitability, it’s very low, around 1% in the last year. Investors give us a lot of credit for future profits, but if, at any point, they conclude that it won’t, our shares will immediately be squashed like a souffle under a sledgehammer!
Image source: Getty Images.
Furthermore, Musk stressed the need to find new ways to save money in production. Also from the email, Musk says “[I]To make our cars affordable, we need to get smarter about how to spend the money … A good idea would be to save $ 5, but the vast majority is 50 cents here or 20 cents there.
Although the company has never experienced positive net income year-on-year, the stock has skyrocketed by around 1.160% over the past five years as investors have increased the stock in the belief that profits would come to a certain point. point along the way. Although Tesla reported its fifth consecutive quarter of profitability in the third quarter of 2020, Musk seems to sense that shareholders want more.
Profits, no doubt, matter, but investors should also appreciate the company’s growing cash flow. For the first time in the past decade, Tesla generated free cash flow on a yearly basis, about 3.9% of its revenue for fiscal 2019, according to Morning Star. On a final twelve-month basis, this metric increased to 6.5%.
Considering Musk’s large incentive package revealed in the spring, it shouldn’t be surprising that he’s so worried about Tesla’s share price.
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