‘This is very solid progress’: Tesla slows cash burn as Model 3 output picks up
CEO Musk allays Wall Street’s doubts, foresees profits in second half of 2018
SAN FRANCISCO Tesla Inc. burned through less cash than analysts expected last quarter and stood firm with chief executive Elon Musk’s projection that profit is around the corner after years of losses.
Free cash flow was negative US$739 million for the three months ended in June, Musk wrote in a letter to shareholders Wednesday. Analysts were projecting Tesla would go through about US$900 million during the period, after burning more than US$1 billion in three of the previous four quarters.
Musk, 47, has insisted the company won’t need to raise more capital this year, an outlook Wall Street has doubted after the company repeatedly pushed back manufacturing targets for the Model 3. The sedan that was central to the company’s mission when it was founded in 2003 — to bring electric vehicles to the masses — has been picking up the pace in recent months, with Tesla now expecting to build as many as 55,000 units this quarter.
“It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable,” Musk and chief financial officer Deepak Ahuja wrote in the letter. “In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive.”
Tesla stock climbed as much as 5.7 per cent to US$317.95 as of 5 p.m. in New York. The stock was down 3.4 per cent through Wednesday’s session.
Tesla ended June with about US$2.2 billion in cash on its balance sheet, the least it’s carried since the first quarter of 2016. But the progress it made slowing how much it was burning through won plaudits even from skeptics.
“I was impressed with their negative free cash flow,” said David Kudla, CEO of Mainstay Capital Management, which is betting against Tesla. “I’m more concerned about quality issues and service issues.”
For almost a year, Tesla followers fixated on the company’s target to make 5,000 Model 3s in a week.
After a struggle Musk blamed in part on relying too much on automation, the carmaker put off capital expenditures toward doubling that rate until it was achieved.
Now that Tesla pulled off that rate of output at the end of June, it’s reviving the goal to make 10,000 a week sometime in 2019. A year ago, the goal was to get there in 2018.
“I’m super happy,” said Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management and one of Tesla’s most outspoken bulls.
“This is very solid progress and plenty of cash to keep the train going. Tesla is going to be an amazing company over the next five years,” said Ross Gerber, CEO of Gerber Kawasaki Wealth & Investment Management. “It’s good to be looking at the other end of this nightmare production ramp.”