Elon Musk wants to steer Tesla towards higher profits

Musk concerned with Tesla's share price? That hardly seems shocking.

| More on:
Tesla stock represented by car driving along open road

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

According to Elon Musk, the time for Tesla Inc (NASDAQ: TSLA) to focus on profits has arrived. In a recently written email that was obtained by the EV news website, Electrek, Musk warned the company's employees that if Tesla's bottom-line doesn't reflect significant growth -- meeting the market's expectations -- investors will likely pump the brakes and send the stock plummeting.

In the email, Musk states:

When looking at our actual profitability, it is very low at around 1% for the past year. Investors are giving us a lot of credit for future profits, but if, at any point, they conclude that's not going to happen, our stock will immediately get crushed like a soufflé under a sledgehammer!

In addition, Musk pointed to the necessity of finding new ways to save money in manufacturing. Also from the email, Musk says, "[I]n order to make our cars affordable, we have to get smarter about how we spend money...A great idea would be one that saves $5, but the vast majority are 50 cents here or 20 cents there."

While the company has never reported positive net income on an annual basis, shares have skyrocketed approximately 1,160% over the past five years as investors drove up the stock on the belief that profits would come at some point down the road. Although Tesla reported its fifth consecutive quarter of profitability in Q3 2020, Musk appears to sense that shareholders are yearning for more.

Profits, undoubtedly, are important, 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 an annual basis, about 3.9% of revenue for fiscal 2019, according to Morningstar. On a trailing-twelve-month basis, this metric has accelerated to 6.5%.

Considering Musk's ample incentive package revealed in the spring, there should be little surprised that he's so concerned with Tesla's stock price.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
International Stock News

Nvidia jumped 27% after its stock split announcement. Can Broadcom beat it?

Following in Nvidia's footsteps, Broadcom is doing a 10-for-1 stock split.

Read more »

a man with a wide, eager smile on his face holds up three fingers.
International Stock News

3 reasons to buy Nvidia like there's no tomorrow (Hint: The stock split Isn't 1 of them)

The GPU leader's shares could head even higher in the coming months and years.

Read more »

A white and black clock face is shown with three hands saying Time to Buy reflecting Citi's view that it's time to buy ASX 200 banks
International Stock News

5 Reasons Nvidia isn't in an AI-fueled bubble

Nvidia's shares may actually be cheap.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

2 reasons to buy Nvidia after the stock split (and 1 reason to sell)

This tech giant is riding a tidal wave of AI-related demand. But is it too late for new investors to…

Read more »

Smiling man working on his laptop.
International Stock News

Which 'other' US AI stock is soaring this week?

This US AI stock is following Nvidia's footsteps in more than one way.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Warren Buffett meets AI: Is Berkshire Hathaway prepared for technological disruption?

Berkshire Hathaway's portfolio may contain underappreciated AI-associated risks.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia stock is still a great buy — but when should investors sell shares?

Here are three solid reasons for investors to consider selling shares of the artificial intelligence (AI) chip leader.

Read more »

Three exuberant runners dash towards the camera. One raises her arms in triumph; another jumps in the air with arms raised. The third runner gives a satisfied smile.
International Stock News

Why Tesla stock jumped today

Tesla investors seem to want to keep CEO Elon Musk happy.

Read more »