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Tesla Loses More Than $700 Million in Q2, Expects a Profitable Q3

Now that Tesla finally (but barely) has hit its production goals for the Model 3, the company is focused on achieving a sustainable profit. But its second-quarter earnings report showed Tesla to still be deep in the red, suffering a $742 million net loss before extraordinary items. Losses per share sat at $3.06.

In spite of such a major loss—nearly double its loss on a year-over-year basis—the automaker still claims to be on target for profitable third and fourth quarters. Compared to the first quarter of 2018, Tesla actually eased its losing pace slightly, as it lost more than $784 million in that period.

Gross revenue totaled $4 billion in the second quarter, with automotive revenues at $3.4 billion and automotive gross margins jumping to 20.6 percent—thanks to improving Model 3 gross margins. Model 3 gross margins will increase to around 15 percent in the third quarter and 20 percent in the fourth quarter, Tesla says, thanks to reduced manufacturing costs and other factors.

Speaking of the Model 3, Tesla is now able to make 5,000 copies per week—with the use of a parking lot tent to help with final assembly. By late August, Tesla wants to increase production to 6,000 units a week. In the third quarter, Tesla aims to crank out 50,000 to 55,000 additional copies of its entry-level sedan. Tesla also is maintaining its target to deliver 100,000 combined Model S and Model X vehicles this year.

As for cash burn, by the end of the second quarter, Tesla had $2.2 billion cash on hand, down from $3.4 billion at year’s end—but essentially a dollar-for-dollar swap with inventory on hand. That $2.2 billion in cash also includes $942 million in customer deposits. Tesla expects its cash number to increase in the remaining quarters of the year.

During Tesla’s quarterly earnings call, CEO Elon Musk once again said the company would not need to raise more capital, despite its ambitious plans and analysts’ predictions to the contrary. Recent reports suggest Tesla’s proposed Gigafactory 3 in China will cost $5 billion to build. During the call, Musk said funding for the battery plant would come from loans from local banks in China.

“Are we running low on money? The answer is no,” Musk said.

Despite its vigorous production growth targets, Tesla recently cut 9 percent of its workforce in a move to slash redundancies, reduce costs, and move toward profitability. The automaker has never achieved full-year profitability in the 15 years it has been in business. And quarterly profits have often been in terms of non-GAAP standards, which Wall Street tends to discount.

“A total vehicle output of 7,000 vehicles per week, or 350,000 per year, should enable Tesla to become sustainably profitable for the first time in our history—and we expect to grow our production rate further in Q3,” Tesla said in in its Q2 earnings letter.

Tesla recently rolled out the Model 3 Dual-Motor Performance, and we had the chance to take it for a quick spin. Producing 450 hp and 471 lb-ft of torque, this vehicle should perform on par with a BMW M3. But analysts are still wondering when the entry-level Model 3—long pitched as a mass-market EV with a target price of $35,000—will arrive. Tesla’s note to shareholders indicated a ramp-up to 10,000 Model 3 units “as fast as we can,” but without a specific time stamp.

In the four hours after Tesla’s loss was posted at Wall Street’s closing bell, Tesla stock price increased nearly 10 percent to just shy of $330 per share in after-hours trading—giving it a market capitalization of nearly $50 billion.

Source: Tesla, CNBC

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