Tesla shares, bonds under pressure as Musk changes tune on profit
By Munsif Vengattil and Kate Duguid (Reuters) - Shares of Tesla Inc sank 14% on Thursday and its bonds traded lower, a day after the electric carmaker said it needed more time to turn a profit, reported lower margins and announced the departure of a key executive. Investors knocked more than $6 billion off Tesla's market value in response to the company's second-quarter results. Only two Wall Street brokerages reduced their existing share price target for the company, but a batch of downbeat research notes from analysts focused on shrinking margins, a key challenge in delivering profit going forward.
By Munsif Vengattil and Kate Duguid
(Reuters) - Shares of Tesla Inc sank 14% on Thursday and its bonds traded lower, a day after the electric carmaker said it needed more time to turn a profit, reported lower margins and announced the departure of a key executive.
Investors knocked more than $6 billion off Tesla's market value in response to the company's second-quarter results.
Only two Wall Street brokerages reduced their existing share price target for the company, but a batch of downbeat research notes from analysts focused on shrinking margins, a key challenge in delivering profit going forward.
Tesla's automotive gross margins dropped in the quarter to 19% from 20%.
Elon Musk on Wednesday said Tesla now aims to be profitable in the fourth quarter, with the current quarter to be break-even. The company said it was focusing less on profit and more on volume growth, capacity expansion and cash generation.
That contrasted with the billionaire CEO's promise this time last year that the company would be profitable and cash flow positive "henceforth".
"Another example of the goal posts being moved," JP Morgan analyst Ryan Brinkman wrote.
The stock was down 14% at $227 in mid-day trading on Nasdaq.
BONDS UNDER PRESSURE The eurobond portion of Tesla's $1.8 billion junk bond was down 2 points in price in brisk trading, pushing its yield back above 8% for the first time since July 1. Its yield spread over Treasuries, a measure of the added risk investors take for owning Tesla's speculative-grade rated bond rather than safer U.S. government securities, widened by more than 40 basis points.
In all, it was the bond's biggest loss since early last September when its chief accounting officer quit after just a month on the job and Musk was filmed smoking marijuana and wielding a sword on a webcast.
"I would have guessed that (the bonds) would have moved a little more than they have," said Tom Graff, portfolio manager, head of fixed income, Brown Advisory. "I think any kind of core thesis about how this company has a sustainable path forward is pretty challenged now. My read on what's left over for bond holders is not 90 cents on the dollar – it is less than that. I don't think it should price like a bankruptcy is imminent, it just feels like more than a (two-point move).”
Newer debt securities from Tesla were also under severe pressure. The $1.84 billion convertible note it issued in early May fell 8 points, the most since it hit the market just over two months ago. It had closed at a record high on Wednesday.
Several analysts were also concerned by the resignation of chief technology officer and pioneer of the company's electric batteries, J.B. Straubel, the last of the company's old guard left in its top echelons outside Musk himself.
"Straubel has been at the forefront of the company's technology leadership, which we believe will increasingly be called into question as competitors catch up," Cowen analysts said.
(Reporting by Munsif Vengattil and Sayanti Chakraborty in Bengaluru; Kate Duguid in New York; Editing by Maju Samuel, Bernard Orr)
This story has not been edited by Firstpost staff and is generated by auto-feed.
By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States
BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.