Tesla's Rising Costs Mean More Shareholder Dilution Ahead

With all eyes on the upcoming rollout of the Model 3 starting this summer, Tesla Inc TSLA shareholders aren’t too concerned about the company’s rising expenses. According to Argus analyst Bill Selesky, they definitely should be.

Tesla’s first-quarter expenses resulted in a per-share loss of $1.33, much worse than the consensus analyst expectation of a $0.87 per-share loss. While a ramp-up of Model 3 production will understandably require heavy investments, every dollar Tesla spends comes from the pockets of its shareholders.

Dilution Forthcoming

Tesla’s losses are trending in the wrong direction, with R&D costs, SG&A costs and total operating expenses up 77 percent, 90 percent an 85 percent, respectively in Q1.

In light of Tesla’s widening losses, Argus now anticipates the company will not turn profitable until at least 2019. Argus has lowered its 2018 EPS forecast from +$1.20 to -$0.50.

In the meantime, Selesky says Tesla could continue with its pattern of dilutive stock offerings to raise cash.

“Tesla has already completed six secondary offerings since its IPO, and we believe that it could again issue new equity to help cover current costs as well as future debt obligations related to the SolarCity acquisition,” Selesky explained.

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In addition to flipping from positive to negative with its 2018 EPS forecast, Argus also more than doubled its estimates losses for Tesla in 2017 from $2.56 per share to $5.48 per share.

“We believe that caution is warranted given the company’s inconsistent operational and financial performance, prospects for operating losses in 2017 and 2018, and the likelihood of additional dilutive stock offerings,” Selesky concluded.

Argus maintains a Hold rating on Tesla stock.