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Tesla posts bigger-than-expected loss, bigger-than-expected revenue

Tesla posts bigger-than-expected loss, bigger-than-expected revenue

reader comments 9 Share this story Tesla’s Model 3 page in July 2018. Tesla expects to be “cashflow positive every quarter from here on out, absent paying down a big loan,” said Elon Musk on a financial call on Wednesday. The CEO came to the call contrite, apologizing to analysts that he had snapped at…


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Tesla's Model 3 page in July 2018.
Tesla’s Model 3 page in July 2018.

Tesla expects to be “cashflow positive every quarter from here on out, absent paying down a big loan,” said Elon Musk on a financial call on Wednesday.

The CEO came to the call contrite, apologizing to analysts that he had snapped at on last quarter’s call and offering subdued analysis for the quarter ahead. “Sorry if I sound a little tired I’ve been working like crazy in the body shop lately,” Musk said.

Tesla published its Q2 2018 financial statement this afternoon, and it was a mixed bag for investors. The company lost more money than it was expected to lose, but Tesla has finally hit the promised 5,000 Model 3s per week number this quarter. As a result, Tesla is slightly up in after-hours trading.

Last quarter, Tesla posted a dramatic loss ($785 million, with $710 million of that attributable to shareholders). This quarter was barely different with net loss at $742 million, with $717 million attributable to shareholders. Total revenues were up as well, with the company making $4 billion this quarter, compared to $3.4 billion the quarter before.

Another closely-watched number in Tesla’s recent quarterly statistics has been the company’s cash on hand, which could dictate the company’s ability to continue expanding. This quarter, Tesla reported $2.2 billion in cash and cash equivalents. Among the company’s liabilities are $942 million in customer deposits. Although this cash is liquid for Tesla, a portion of it is also money that can be revoked if a customer no longer wants the car for which they offered the deposit. Additionally, the company reported $3.03 billion in accounts payable, which investors may look at warily if the company needs to take on any more debt for whatever reason.

However, on the call Musk assured investors that more capital expenditures were not looming, and Tesla was in a comfortable spot with cash. “Do we have a low balance in the bank? The answer is no, we are not in any kind of cash flow shortage at all,” Musk said on Wednesday, adding that he is “highly confident of being cash flow positive and net profitable in Q3 and Q4.”

“There could be a force majeure, like an earthquake or a mass recession, but absent of that…” Tesla would be able to hit its numbers, Musk said.

Those production numbers

Although the dollar signs on Tesla’s Q2 2018 financial statement offered no overwhelming reason to celebrate, investors have apparently been heartened by Tesla’s production numbers. Last week, the financial statement said, Tesla pushed 7,000 vehicles—Models S, X, and 3—out to customers from its Fremont, California factory. This happened in July “several times,” according to the company, with 5,000 Model 3 vehicles and 2,000 Models S and X.

Tesla has projected that it will produce 6,000 Model 3 vehicles per week a number of times throughout Q3, all “while keeping additional capex limited.” That’s important to investors who have seen the company burn through cash during the Model 3 ramp-up and are impatient to see some return  from the rapidly growing company. In Q3, Tesla expects to produce 50,000 to 53,000 Model 3s total.

The financial statement added that Tesla would be able to produce 10,000 Model 3s sometime next year.

Still, one criticism of these Model 3 numbers is that Tesla is not producing the low-cost Model 3s that were promised years ago. Thus far, the Model 3s that have been delivered have been $49,000 or $79,000 performance versions with longer batteries or all-wheel-drive. The $35,000 vehicle that the Model 3 was supposed to be has still not arrived.

However, the premium Model 3s seem to be selling well. Musk said that since the Model 3 configurator was opened in July, about half of all orders placed have been for dual-motor, all-wheel-drive vehicles. “We don’t want to say this is assumed to be a continued thing, it’s just the thing we’re seeing now,” Musk said on the call.

The Chinese Gigafactory

In July, Tesla announced that it would build a massive 500,000-car Gigafactory in Shanghai. On today’s call, Musk said that his company didn’t intend to raise any more money through equity, and instead would finance the factory with local loans from Chinese banks.

When asked how much the next Gigafactory would cost, Musk was optimistic as per usual. “We’re confident that we can do the Gigafactory in China for a lot less” than the Gigafactory in Nevada, Musk said, estimating that the buildout would cost about $2 billion. The factory “would include battery module and pack production, body shop, paint shop, and internal assembly,” the CEO said.

“Cell production is still something we need to figure out with respect to the factory,” Musk added.

Autonomous advancements coming

A few investors were curious about automation. Tesla is building its own hardware these days, and Musk had nothing but praise for the new custom-build chipsets that will be able to be swapped in for the current Nvidia GPUs that currently live in Tesla vehicles. The computers are currently being tested in the field and will apparently cost the same to produce as acquiring the Nvidia chips. Musk said it will be “easy to switch out the computer” because “all the connectors are compatible.”

Software got a spotlight too. A Tesla executive said that the coming version of autopilot will include “on-ramp to off-ramp solutions.”

Musk also addressed why Tesla had not done a coast-to-coast drive yet. The short answer? The company says it’s working on safety first. (Likely an important message for this call given previous turbulent quarters with high-profile accidents involving autopilot.)

“We could do a coast to coast drive, if we pick a specific route, but that would be kind of gaming the system and I think it’s important for the team to focus on safety,” Musk said. Instead, the team has a “super heads-down focus” on the coming Autopilot version which Musk promised “will certainly include some significant advancements, and once it’s out and stable then maybe we could do a coast-to-coast drive.”

That weird tent

Earlier this quarter, Tesla erected a tent next to its Fremont factory. The tent housed a new general assembly line for the Model 3, which the company is calling GA4. Today’s financial report noted: “To address the short-term issues with GA3, we built GA4 to help us reach our 5,000 units per week target earlier and ultimately to push us past that point. We were able to build GA4 quickly due to the designed simplicity of the Model 3 architecture.”

On the accompanying call, Musk sang GA4’s praises while noting that GA3 is close to being able to produce 5,000 cars per week.

The “tent is amazing,” Musk said, adding that it is currently being used as a permanent structure. We just had to come up with a creative solution because GA3 was just not going to come up with the rate.”

The CEO said one of the greatest innovations was putting parts delivery on a one percent grade, and rolling Model 3 bodies down the line with the aid of gravity as parts are put in.

GA4 also tallies fewer labor hours per car than the GA3 system, Musk said. “When we have parts deliver to GA4, the truck literally backs up to the back of the line.” By contrast “for GA3 they’re unloaded, they’re warehoused, they’re repackaged into totes that go up to GA3.”

“That’s all gone on GA4,” Musk said. “Not having to maintain all those robotics systems [related to moving parts in totes]… it’s already at an efficiency system greater than GA3.”

Energy quietly trucks along

The final minutes of the financial call were devoted to Tesla’s energy business. At Tesla’s Nevada Gigafactory, some production resources previously devoted to utility and home storage batteries had been reallocated to Model 3 production last quarter. “The biggest limiter of growth will be battery production, especially cell production and the whole cell supply chain,” Musk said.

“We actually had to artificially limit the number of Powerwalls [that Tesla made] because we don’t have enough cells,” Musk said.

The CEO also said next year Tesla Energy would begin “ramping up solar and the solar roof.”

“We now have several hundred with solar roofs” installed, Musk said, adding that “it’s quite a long validation process,” to make sure that the roof won’t break or catch fire when it rolls out to the masses.

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