Tesla shares tumble as Q2 results disappoint

CUTTING COSTS

Tesla Inc. on Wednesday posted a steeper-than-expected loss in its second quarter as profit margins on its vehicles narrowed, saying it still aimed for profit in the current quarter, even as growth and cash took priority.

Automotive gross margins, a key focus for investors, dropped in the quarter from 20 per cent to 19 per cent, even as revenue from robust deliveries fell short of analysts’ expectations.

Shares fell 11 per cent after hours.

Under pressure to meet his promise to post a profit in the second half of the year, chief executive Elon Musk is trying to contain costs while still spending on major initiatives from a Shanghai factory and assembly-line to upcoming models, such as the Model Y SUV and a Semi commercial truck.

The company has laid off workers and pledged to close some stores to lower expenses. Facing increased competition from a slew of European rivals with electric offerings, it has also tinkered with its pricing and dropped some lower-priced versions of its models in recent months.

Most recently, the company eliminated the least expensive versions of its Model S sedan and Model X SUV, while cutting the starting price of its Model 3 to US$38,990.

Musk has rolled back profit pledges after initially promising that Tesla would be profitable starting from the third quarter of 2018. Following a drop in first-quarter deliveries, Tesla warned in February it would not be profitable in that quarter.

It gave a similar warning for the second quarter in April, saying it expected to return to profitability in the third quarter.

On Wednesday, Tesla was less definitive: “We continue to aim for positive GAAP (Generally Accepted Accounting Principles) net income in Q3 and the following quarters, although continuous volume growth, capacity expansion and cash generation will remain the main focus.”

The company’s strong second-quarter deliveries assuaged doubts about demand for the Model 3, but concerns linger, especially since a federal tax credit was cut by half on July 1 and expires at the end of the year.

The company on Wednesday repeated a target of producing 10,000 vehicles per week by the end of 2019.

A 58.7 per cent revenue rise to US$6.35 billion in the quarter fell short of the US$6.41 billion estimated by analysts, according to IBES data from Refinitiv, even as a non-GAAP loss of US$1.12 per share was deeper than the loss of 36 cents they expected.

Shares of Tesla are down 22 per cent since the beginning of the year, but they have been rebounding since early June, after hitting their lowest close since early 2016 at US$178.97.