Tesla turns negative after David Einhorn questions billing practices

Yahoo Finance’s Emily McCormick joins Seana Smith to break down why short-seller David Einhorn is questioning Tesla's billing practices.

Video Transcript

SEANA SMITH: Tesla shares reversing and are now down more than 4%. Now this comes despite the fact that the company revealed a surprise profit in the first quarter.

For more on this, we have Emily McCormick in. Emily, it's a little bit interesting when you take a look at the stock performance today. We were up over 4%, now down in the red, off over 4%. Why are we seeing a reversal so far today?

EMILY MCCORMICK: Well, Seana, we did have some news come out partway through today's session. We had David Einhorn, the president of hedge fund Greenlight Capital, challenging Tesla's billing practices in an open letter to Elon Musk posted on Twitter earlier today. He specifically took issue with Tesla's accounts receivable, particularly since Tesla still posted solid results even though the company likely saw sales lower at the end of the quarter due to the coronavirus pandemic, and that's usually the part of the quarter that Tesla relies on to really see a bump for quarterly results overall.

So that call-- getting that called into question is something that really sparked the reversal that we're seeing. The stock had been up more than 8% during the overnight session and earlier on around market open, and that was because of these much better results that we saw for the first quarter. So that was a first-quarter profit that had been unexpected as well as an about 30% rise in sales to nearly $6 billion.

We did see free cash flow about negative $895 million. But for at least the overnight session, that was something that the Street wasn't as focused on. Really, there had been a lot of optimism around the ramp of the Model Y, the fact that we had automotive gross margins improving to 25 and 1/2% in the first quarter, which was an improvement versus just about 23% over last year. And still a pretty good margin at 20% even when you exclude those regulatory credits.

So an interesting story that we've seen play out between the earnings, the David Einhorn challenge this afternoon, and then now seeing the stock down about 4%.

SEANA SMITH: Yeah, Emily, I want to ask about the coronavirus impact that that's going to have on Tesla. Do you have any more information about that? Because it was interesting just in terms of what Elon Musk was saying about-- when he was asked about a potential slowdown. He said it was still pedal to the metal on new products and also plans for expanding the company.

EMILY MCCORMICK: Right. Well, Elon Musk did give a rather colorful earnings call yesterday after market close. He called the coronavirus social-distancing measures akin to, quote, "forcibly imprisoning people in their homes against all their constitutional rights." He later conflated it with fascism. So he definitely didn't have a lot of positive things to say about the coronavirus pandemic and the social-distancing measures that have emerged because of it.

Now, Tesla did have to shut down its Fremont factory, its flagship Fremont auto facility, at the end of the day starting March 23. So that's been a weeks-long closure that is really threatening Tesla when it comes to those delivery goals that it had at the beginning of the year. In January, Tesla said it had hoped to-- or it believed it would comfortably exceed 500,000 vehicle deliveries this year, although analysts are now saying that that's much more unlikely given the nature of the pandemic and the way that it's impacted both the supply chain and demand for autos overall.

SEANA SMITH: All right, Emily McCormick, thanks so much.