Tesla burns less cash than expected

Ramping up for production of Model 3

SAN FRANCISCO • Tesla Inc. burned through less cash than analysts expected before bringing out its most affordable model yet, as costly investments strain the balance sheet of the electric-car company led by Elon Musk.

The maker of Model S sedans reported negative free cash flow of US$1.16 billion in the second quarter in a letter to shareholders Wednesday, less than the $1.3 billion projected by analysts. The burn rate was still a quarterly record and almost doubled the amount of money Tesla went through in the first three months of the year.

Musk spent heavily leading up to last week’s rollout of the Model 3, a sedan that starts at US$35,000 and has racked up more than half-amillion reservations. Tesla has been making costly investments to ramp up car and battery manufacturing, expand customer service operations and build out its network of recharging stations.

“How egregious the cash flow is will be topical for investors,” Jeff Osborne, a Cowen & Co. analyst, said in an interview Wednesday before Tesla reported results.

“What has to happen to go from hand-building 50 cars to making 5,000 a week?”

Tesla had more than US$3 billion in cash on hand at the end of the latest quarter. The Palo Alto, Calif.based company has had little trouble drawing investor interest in funding Musk’s ambitions, with optimism about the Model 3’s prospects contributing to a 53-per-cent jump in its stock price this year.

The shares rose 2.5 per cent to US$334.06 as of 4:35 p.m. ET Wednesday, after the close of regular trading.

Tesla forecast spending US$2 billion in capital expenditures in the second half of the year, up from US$1.5 billion in the first six months of the year. The company said it expects to deliver more Model S and Model X vehicles in the second half than the first, without providing a specific target.

Musk handed over the first 30 Model 3s to employees on Friday and said the company had produced 20 more for engineers to test.

Tesla’s goal is to build 100 of the cars in August and more than 1,500 in September, then ramp up to a targeted rate of 20,000 a month in December.

The CEO said pulling off those plans will be “production hell” for workers at Tesla’s lone car assembly plant in Fremont, Calif.

Since the handover event, Tesla said it’s averaging more than 1,800 net Model 3 reservations per day. German firms. There have been rumours that Kaufhof could merge with Germany’s other major department store chain, Karstadt.

Litt-controlled Land and Buildings on Monday pushed for Hudson’s Bay to sell its Saks Fifth Avenue brand and think of it more as a real estate investment, rather than just a department store.

Land & Building, which owns about a five-per-cent stake in Hudson’s Bay, launched the campaign against HBC last month.

Hudson’s Bay reiterated it plans to invest 1 billion euros ($1.5 billion) in Kaufhof over the next five to seven years. It bought Kaufhof for 2.8 billion euros in 2015.