De­spite losses, Tesla re­ports $2.79 bil­lion in to­tal rev­enue

Fo­cus re­mains on pro­duc­tion, de­liv­ery of Model 3.

Austin American-Statesman - - BUSINESS - Bill Vlasic © 2017 The New York Times

The elec­tric-car maker Tesla re­ported Wed­nes­day that its losses widened in the sec­ond quar­ter as it con­tin­ued to in­vest in fac­to­ries to ac­com­mo­date the in­tro­duc­tion of its first mass-mar­ket ve­hi­cle.

Tesla said it lost $401.4 mil­lion in the quar­ter that ended June 30, com­pared with a loss of $293.2 mil­lion in the same pe­riod in 2016.

The com­pany also re­ported over­all growth in its op­er­a­tions, which in­cludes its au­to­mo­tive business and its so­larpanel di­vi­sion.

Tesla said its to­tal rev­enues for the quar­ter were $2.79 bil­lion, more than dou­ble the $1.27 bil­lion it recorded in the com­pa­ra­ble pe­riod last year.

Rev­enues from the com­pany’s auto op­er­a­tions were $2.29 bil­lion, com­pared with $1.18 bil­lion a year ear­lier.

Tesla shares were up more than 5 per­cent in ex­tended trad­ing af­ter the earn­ings re­port.

While Tesla posted stronger sales of its ex­ist­ing ve­hi­cles — the Model S sedan and Model X SUV — the big­gest chal­lenge it faces is pre­par­ing for the in­tro­duc­tion of the Model 3, the com­pany’s first foray into the mass mar­ket, with prices start­ing at $35,000.

The com­pany has con­sis­tently lost money be­cause of heavy spend­ing on re­search, prod­uct de­vel­op­ment and equip­ment for its assem­bly plant in Cal­i­for­nia and its bat­tery fac­tory in Ne­vada.

Elon Musk, a founder of the com­pany and its chief ex­ec­u­tive, has said Tesla is earn­ing good mar­gins on the small num­ber of Model S sedans and Model X SUVs it has sold.

But while sales are ris­ing, the per-car prof­its are not nearly sub­stan­tial enough to cover Tesla’s high in­vest­ment costs.

Tesla’s best hope for im­prov­ing its fi­nan­cial re­sults is to pro­duce a steady flow of new Model 3 ve­hi­cles for de­liv­ery to cus­tomers later this year.

In­ter­est in the Model 3 has been huge since Tesla be­gan tak­ing $1,000 de­posits on it more than a year ago.

At an event Friday where the first 30 ve­hi­cles were de­liv­ered to their new own­ers — all of them Tesla em­ploy­ees — Musk said that more than 500,000 prospec­tive buy­ers had put down de­posits.

“We are go­ing to do ev­ery­thing we can to make cars as fast as we can,” he said. “De­mand is not a chal­lenge here.”

Tesla pro­duced about 25,000 cars in the sec­ond quar­ter, which trans­lates to an an­nual rate of 100,000. But Musk re­it­er­ated Friday that the com­pany still hoped to pro­duce 500,000 cars next year.

In­dus­try an­a­lysts have been hes­i­tant to ex­press doubts about Musk, mostly be­cause Tesla has al­ready de­fied ex­pec­ta­tions for a startup au­tomaker.

But in­vestors are scru­ti­niz­ing how quickly the com­pany can ac­cel­er­ate pro­duc­tion to begin de­liv­er­ing a sig­nif­i­cant num­ber of Model 3s to buy­ers this year.

Musk’s widely re­ported com­ment last week that Tesla faces six months of “man­u­fac­tur­ing hell” has caused some an­a­lysts to ques­tion whether the com­pany can meet its ag­gres­sive tar­gets.

“This of course raises ques­tions about Tesla’s broader abil­ity to scale not just its man­u­fac­tur­ing, but the en­tire sup­port­ing in­fras­truc­ture,” said Cle­ment Thibault, an an­a­lyst with the web­site in­vest­ing.com.

The first Model 3s to be built will pri­mar­ily be more ex­pen­sive vari­a­tions, at $44,000, equipped with longer-range bat­tery packs and au­topi­lot fea­tures that en­able the cars to be driven pri­mar­ily by com­puter. Tesla will then add pro­duc­tion of the baseprice ver­sion.

The higher-priced, op­tion­laden ver­sions could gen­er­ate bet­ter profit mar­gins.

Tesla is also gain­ing some ground in the mar­ket­place. The com­pany re­ported that sales of the Model S and Model X in the United States to­taled 3,100 ve­hi­cles in July, and it said that over­all sales for the first seven months of the year had in­creased by 35 per­cent over the same pe­riod in 2016.

“The tran­si­tion of the more than one-bil­lion-unit ana­log head­set mar­ket to dig­i­tally con­nected prod­ucts con­tin­ues to gain mo­men­tum as (man­u­fac­tur­ers) push to in­no­vate beyond mo­bile phones,” Rhode said in the share­holder let­ter.

He said the com­pany is “ac­tively work­ing” on ing and ship­ping jobs at Ama­zon will be full time. Most of them will count to­ward Ama­zon’s pre­vi­ously an­nounced goal of adding 100,000 full­time work­ers by the mid­dle of next year.

The bad news is that more peo­ple are likely to lose jobs in stores than get jobs in ware­houses, said An­thony Carnevale, direc­tor of Ge­orge­town Univer­sity’s Cen­ter on Ed­u­ca­tion and the Work­force.

On the flip side, Ama­zon’s ware­house jobs pro­vide “de­cent and com­pet­i­tive” wages and could help build skills.

“In­ter­per­sonal team­work, prob­lem solv­ing, crit­i­cal think­ing, all that stuff goes on in th­ese ware­houses,” Carnevale said. “They’re se­ri­ous en­trylevel jobs for a lot of young peo­ple, even those who are still mak­ing their way through school.”

The com­pany is advertising start­ing wages that range from $11.50 an hour in Chat­tanooga, Ten­nessee, to $13.75 an hour in Kent, Wash­ing­ton, near Ama­zon’s Seat­tle head­quar­ters. The $11.50 rate amounts to about $23,920 a year. In Wash­ing­ton state, the cur­rent min­i­mum wage is $11.50 but by 2020 will in­crease to $13.50. By com­par­i­son, the ware­house store op­er­a­tor Costco raised its min­i­mum wage for en­trylevel work­ers last year from $13 to $13.50 an hour.

Some job can­di­dates Wed­nes­day were look­ing to sup­ple­ment other in­come.

Rodney Huff­man, a 27-yearold per­sonal trainer, said the $13-an-hour job in Bal­ti­more would pay enough to help cover bills while he starts his own com­pany.

“I’m look­ing to do the night shifts and then run my own com­pany dur­ing the day,” he said.

At one ware­house — Ama­zon calls them “ful­fill­ment cen­ters” — in Fall River, Mas­sachusetts, Ama­zon was look­ing to hire more than 200 peo­ple Wed­nes­day, adding de­signs with cus­tomers “across all head­set form fac­tors,” in­clud­ing wire and wire­less. And dur­ing a con­fer­ence call with an­a­lysts, Rhode said Cir­rus is tar­get­ing premium head­phone prod­ucts and cus­tomers.

The com­pany re­ported profit of $42.9 mil­lion, or 64 cents a share. But when ad­justed for cer­tain one-time costs and gains, the com­pany re­ported $54.6 mil­lion, or 88 cents a share, which is sig­nif­i­cantly to a work­force of about 1,500. Em­ploy­ees there fo­cus on sort­ing, la­bel­ing and ship­ping what the com­pany calls “non­sortable” items — big prod­ucts such as shov­els, kayaks, surf­boards, grills, car seats — and lots of gi­ant di­a­per boxes. Other ware­houses are fo­cused on smaller prod­ucts.

While Ama­zon has at­tracted at­ten­tion for de­ploy­ing ro­bots at some of its ware­houses, ex­perts said it could take a while be­fore au­to­ma­tion be­gins to se­ri­ously bite into its grow­ing la­bor force.

“When it comes to dex­ter­ity, ma­chines aren’t re­ally great at it,” said Ja­son Roberts, head of tech­nol­ogy and an­a­lyt­ics for mass re­cruiter Rand­stad Sourceright, which is not work­ing with Ama­zon on its jobs fair. “The picker-packer role is some­thing hu­mans do way bet­ter than ma­chines right now.”

Steve King, 47, a job can­di­date in Fall River with ex­pe­ri­ence run­ning his own business, agreed: “I don’t think ro­bots are up to snuff yet. I think they will be. Hope­fully I can get in be­fore the ro­bots get that good and get above the ro­bots in ad­min­is­tra­tion or some­thing.”

In re­cent years, re­ports have emerged about dif­fi­cult work­ing con­di­tions at Ama­zon’s ware­houses, in­clud­ing deaths at two Ama­zon ware­houses in 2014. The com­pany also came un­der fire in 2011 for ex­treme heat at its ware­houses that caused “heat-re­lated in­juries” among work­ers. Ama­zon said at the time that it took emer­gency ac­tions dur­ing heat waves and sub­se­quently in­stalled cooling sys­tems in its ware­houses.

But many of those who showed up Wed­nes­day were ex­cited by the prospects of health in­sur­ance and other ben­e­fits, as well as ad­vance­ment op­por­tu­ni­ties.

“I like to be busy, so I know Ama­zon is busy and they want hard work­ers,” re­tired po­lice Of­fi­cer Brian Trice said.

Trice was among those who stood in line in Bal­ti­more on a hot day as Ama­zon con­trac­tors passed out bot­tles of wa­ter. In bet­ter than an­a­lysts were ex­pect­ing.

The com­pany em­ploys about 1,450 peo­ple world­wide, with more than 600 in Austin.

Cir­rus Logic’s shares closed Wed­nes­day at $63.37, a slight in­crease from the day be­fore. The com­pany’s stock is up 10 per­cent since the start of the year. Fall River, a line snaked out of the ware­house and un­der an air-con­di­tioned tent. In Kent, Wash­ing­ton, a ven­dor of­fered free cups of shaved ice from a truck play­ing steel­drum mu­sic.

Among those lin­ing up in Kent were 18-year-old Javier Costa and his 49-year-old uncle, Manuel Al­varenga. Costa said the ware­house work wasn’t nec­es­sar­ily what he was look­ing for, but his uncle, a re­cent im­mi­grant from El Sal­vador, was look­ing for what­ever he could get.

“He was mak­ing $6 an hour in El Sal­vador; you can imag­ine what the peo­ple be­low him were mak­ing,” Costa said. “It’s a harder life down there. At this point he just needs a job.”

Ron Joslin, 55, said he’s long worked at call cen­ters, most re­cently mak­ing med­i­cal ap­point­ments for veter­ans. But he lost that job in April, and since then hasn’t been able to find work — de­spite the Seat­tle area’s hot la­bor mar­ket.

“I don’t be­lieve the num­bers re­flect what’s re­ally hap­pen­ing,” he said, wait­ing in a line hun­dreds of peo­ple long. “You want to see what’s re­ally hap­pen­ing, go to the un­em­ploy­ment of­fice and see how many peo­ple are there and how long they’ve been un­em­ployed.”

Some left dis­ap­pointed. Mau­reen Schell gave up af­ter sev­eral hours at the Fall River site, de­scrib­ing it as a pub­lic­ity stunt and a “drive to get bod­ies in the door so they can cherry-pick the ware­house staff they want.”

“It looks like they’re look­ing for young, healthy ware­house staff only,” said Schell, a 57-year-old search­ing for work that will put more money into her re­tire­ment.

TOM MC­CARTHY JR. / FOR AMER­I­CAN-STATES­MAN 2016

Austin’s Cir­rus Logic pro­vides au­dio and voice chips for the Ap­ple iPhone. Its other cus­tomers in­clude Mo­torola, Sam­sung and Sony. About 1,450 peo­ple work for the com­pany, more than 600 of them in Austin.

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