Tesla reported another big loss for the second quarter. But it burned less cash along the way to ramping up production of its “bet the company” electric sedan, the Model 3.
The $717.5-million loss was larger than analysts had expected, slightly higher than the previous quarter’s $709-million loss and more than double the $336.4 million loss in the same quarter a year earlier. The company reiterated its intentions to achieve profits in the third and fourth quarters and beyond.
Tesla said its operating cash flow improved from negative $784.6 million in the first quarter to a negative $742.7 million in the second.
“Going forward, we believe Tesla can achieve sustained quarterly profits, absent a severe force majeure or economic downturn, while continuing to grow at a rapid pace,” the company said in its quarterly letter to investors.
Investors reacted positively to the report, pushing Tesla shares up as much as 10% in after-hours trading. The stock, which had been sliding recently, closed Wednesday up $2.70, or 0.9%, to $300.84 before the news came out, giving the company a market value of about $51 billion.
One analyst expressed relief that Tesla Chief Executive Elon Musk stuck to seemingly achievable goals.
“One of the things I like was the more muted tone,” said Efraim Levy of CFRA Research. “They didn’t stretch goals and make hard targets. They said they’d get to 10,000 a week [production of the Model 3] as soon as possible. A more cautious Elon Musk is a good thing.”
But one short seller said he’ll stick to his bet that the company’s stock is grossly overvalued.
“Tesla is a structurally unprofitable business,” said Mark Spiegel of Stanphyl Capital. “Their expenses are way too high to reach consistent profitability.”
So far this year, the company has lost more than $1.5 billion, while its cash pile has fallen from $3.5 billion to $2.8 billion
The Model 3 has been plagued by production problems caused mainly by Tesla’s overly aggressive approach to automation at its Fremont, Calif., factory.
In a conference call after the earnings release, Musk assured stock analysts that the fixes to the assembly line are proceeding apace.
He also apologized to three analysts for belittling their questions and cutting them off with no answers in the first-quarter conference call in May.
“I want to apologize for being impolite on the prior call.” He said he was sleep deprived, but that’s “no excuse for bad manners.”
The company aims to produce 6,000 Model 3s a week by late this month, and then “increase production over the next few quarters beyond 6,000,” the letter said. “We aim to increase production to 10,000 Model 3s per week as fast as we can.”
That rate, along with the 2,000 Model S and Model X vehicles Tesla has been turning out each week, “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.”
Automobile revenue rose 23% in the second quarter from the previous quarter, to $3.36 billion, mainly from Model 3 sales.
The company produced 52,339 vehicles in the second quarter and delivered 40,708 — leaving 12,631 mostly Model 3s still to find their way to customers. Thousands of Model 3s are being stored in large lots outside Stockton and near Hollywood Burbank Airport. The company said in the letter that its “delivery pattern should smooth out in the next two quarters.”
The key to turning profits will be both added sales and cost-cutting. This year Musk said Tesla will trim back 2018 capital spending from a planned $3.4 billion to $3 billion. In the investment letter, the company reduced that even further, to $2.5 billion.
That means delayed capital spending on upcoming crossover vehicles, pickups and semi trucks previously announced by Musk.
Still, asked whether he is sticking to his earlier ambition to make 1 million vehicles a year by the end of 2020, Musk said, “I think so, yeah … if it isn’t a million, it might be 750 [thousand] … between half a million and a million.”
Musk had said Tesla doesn’t need to raise new debt or equity capital for the rest of the year. Bloomberg reported Wednesday that Tesla is searching for a Chinese partner to help finance a planned $5-billion manufacturing complex in China. Tesla is likely to borrow money from Chinese lenders, and China will play a large part in Tesla’s growth, Musk said.