Tesla loses $401 mil­lion

More red ink comes as the elec­tric car maker ramps up for Model 3.

Los Angeles Times - - BUSINESS - By Russ Mitchell

SAN FRAN­CISCO — As Tesla be­gins ramp­ing up pro­duc­tion of its cru­cial Model 3 sedan, the com­pany on Wed­nes­day re­ported a sec­ond-quar­ter net loss of $401.4 mil­lion.

The loss, which comes to $2.04 a share, was bet­ter than an­a­lysts had ex­pected but still 37% higher than what the com­pany re­ported in the same quar­ter last year.

Tesla recorded rev­enue of $2.79 bil­lion in the sec­ond quar­ter, up 34% from a year ear­lier.

The com­pany said it used up $1.16 bil­lion of cash dur­ing the quar­ter, but it has $3 bil­lion cash on hand, enough for “suf­fi­cient liq­uid­ity.”

Efraim Levy, eq­uity an­a­lyst at CFRA, said he be­lieves that will carry the com­pany through 2017, but “we do think a cap­i­tal raise in 2018 is likely to sup­port pro­duc­tion of the Model 3.” He re­tained his sell rec­om­men­da­tion on the stock.

The re­port comes days af­ter the com­pany be­gan sell­ing its long-awaited Model 3, which the earn­ings re­lease called “a huge mile­stone.”

The fu­ture of the com­pany hangs on the Model 3, de­scribed as a mid-mar­ket car with a price range of $35,000 to $60,000. The com­pany de­liv­ered the first 30 to buy­ers July 28, all of them Tesla em­ploy­ees. A hun­dred more will be built in Au­gust, 150 in Septem­ber, fol­lowed by a ramp-up to 5,000 a week by the end of De­cem­ber, the com­pany said.

Tesla, which sold 76,000 Model S and X lux­ury cars in 2016, said it plans to turn out 500,000 cars by the end of 2018.

But to get there, Tesla faces six to nine months of “man­u­fac­tur­ing hell” and “pro­duc­tion hell,” Tesla Chief Ex­ec­u­tive Elon Musk told work­ers and re­porters last week.

If Model 3 sales meet Tesla’s ex­pec­ta­tions, the fed­eral gov­ern­ment’s $7,500 con­sumer credit per ve­hi­cle will run out for its cus­tomers, with un­know­able ef­fects on Model 3 sales. The com­pany is lob­by­ing the Cal­i­for­nia Leg­is­la­ture to make up the dif­fer­ence if the fed­eral sub­si­dies run out. A bill to spend $3 bil­lion on elec­tric car sub­si­dies is cur­rently in a state Se­nate com­mit­tee.

Musk told re­porters last week that more than 500,000 peo­ple had put down $1,000 re­fund­able reser­va­tions on a Model 3.

Musk told stock an­a­lysts Wed­nes­day the fig­ure he gave “was just a guess.” The to­tal ac­tu­ally is 455,000 when can­cel­la­tions are sub­tracted, he said.

Twit­ter and other on­line fo­rums are filled with com­plaints about long waits for can­cel­la­tion re­funds. Since last week’s Model 3 in­tro­duc­tion, the com­pany said, it’s re­ceived about 1,800 new reser­va­tions a day.

Aside from the Model 3, some in­vestors and an­a­lysts won­der whether growth in Model S sales is tapped out. For this year’s sec­ond quar­ter, which ended in June, Tesla had re­ported 22,046 Model S and X de­liv­er­ies. That’s 53% higher than the sec­ond quar­ter of 2016, the com­pany said. It also marks four con­sec­u­tive quar­ters of flat or de­clin­ing unit growth.

“We ex­pect Model S and Model X de­liv­er­ies to in­crease in the sec­ond half of 2017, as com­pared to the first half of the year,” Tesla said.

The com­pany said sec­ond-quar­ter de­liv­er­ies would have been higher but for pro­duc­tion prob­lems at its mas­sive Gi­gafac­tory bat­tery plant in Ne­vada, in­volv­ing new tech­nol­ogy on a new pro­duc­tion line. Those prob­lems have been re­solved, the com­pany has said.

It’s un­clear whether those prob­lems are re­lated to the de­par­ture of Kurt Kelty, se­nior direc­tor of bat­tery tech­nol­ogy at Tesla.

Asked whether Kelty quit or was fired, a com­pany spokesman of­fered a state­ment: “We can con­firm that Kurt Kelty has left the com­pany to ex­plore new op­por­tu­ni­ties and we want to thank him for ev­ery­thing he’s done for Tesla. Kurt’s re­spon­si­bil­i­ties will be dis­trib­uted among Tesla’s ex­ist­ing teams.”

Kelty could not be reached for com­ment.

Kelty was in charge of bat­tery cells for Tesla. Cells are the ba­sic com­po­nents in an elec­tric ve­hi­cle bat­tery pack. The lithium-ion cells look sim­i­lar to AA bat­ter­ies, but a bit big­ger. Hun­dreds or thou­sands of them are clus­tered and packed to­gether to power mod­ern elec­tric ve­hi­cles.

Tesla has a con­tract with Pana­sonic of Ja­pan to man­u­fac­ture cells at the Gi­gafac­tory. Kelty worked in re­search and de­vel­op­ment at Pana­sonic for 15 years be­fore he joined Tesla in 2006. Tesla is locked in to a take-or-pay con­tract with Pana­sonic, which Kelty ne­go­ti­ated. That means Tesla is bound to pur­chase set amounts of cells at the ne­go­ti­ated price.

Some an­a­lysts say lower cell prices from other man­u­fac­tur­ers in Asia could put Tesla’s bat­tery costs above those of com­peti­tors. Cell pric­ing is pub­licly opaque, how­ever, and ab­sent Tesla dis­clo­sures any ef­fect would be hard for out­siders to de­ter­mine.

In a con­fer­ence call, Musk said new so­lar roofs from the com­pany’s So­larCity arm have been in­stalled on some Tesla em­ployee rooftops, in­clud­ing on his own Bel Air res­i­dence.

So­lar power and bat­tery stor­age cur­rently make up a small per­cent­age of Tesla rev­enue, but it has high hopes for both.

Tesla shares rose $6.32, or 2%, to $325.89 on Wed­nes­day be­fore earn­ings were re­leased. They rose 8% in af­ter-hours trad­ing.

‘We ex­pect Model S and Model X de­liv­er­ies to in­crease in the sec­ond half of 2017, as com­pared to the first half of the year.’ —Tesla


TESLA de­liv­ered the first 30 Model 3s last week. All buy­ers were Tesla work­ers.

Justin Sul­li­van Getty Im­ages

SOME IN­VESTORS and an­a­lysts won­der whether growth in Tesla Model S sales is tapped out. Above, Model S cars out­side a show­room in Corte Madera, Calif.

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