Tesla says Model 3 production on track, will curb spending in 2018

FAN Editor
A Tesla Model 3 car is displayed during a media preview at the Auto China 2018 motor show in Beijing
A Tesla Model 3 car is displayed during a media preview at the Auto China 2018 motor show in Beijing, China April 25, 2018. REUTERS/Jason Lee

May 2, 2018

By Alexandria Sage

SAN FRANCISCO (Reuters) – Tesla Inc stood by its production targets for its Model 3 on Wednesday, assuring investors that its key new vehicle was on track, and sought to downplay increased wariness over its finances, saying it expected to achieve net profit in both its third and fourth quarters.

Still, the company – which posted its worst-ever quarterly loss on Wednesday – warned it would shut down production for about 10 days during the second quarter, including its most recent stoppage in April. That temporary shutdown underscores how Tesla’s assembly line still needs work to produce its goal of 5,000 Model 3 vehicles per week by the end of June.

Tesla said its spending had been trimmed and the company would spend less than $3 billion in capital expenditures in 2018, below its 2017 total of $3.4 billion.

“We have largely overcome this bottleneck,” wrote the Silicon Valley-based company in a release, referring to the manufacturing issues that have plagued the Model 3 battery module line at the Nevada Gigafactory.

Tesla said it produced 2,270 Model 3s per week in the last week of April, up from 2,250 in the second week of the month. (https://bit.ly/2jn15SB) It said the net reservations for the Model 3, including configured orders not yet delivered, exceeded 450,000 at the end of the first quarter.

Tesla built only 2,425 Model 3s in its fourth quarter.

Automotive revenue rose only 1 percent from the prior quarter to $2.74 billion.

Shares of the Palo Alto, California-based company were up nearly 1 percent at $303 in extended trading.

Chief Executive Elon Musk twice last month said Tesla will not need a capital raise in 2018, due to profitability and positive cash flow in the third or fourth quarters.

Tesla reported a loss of $709.6 million, or $4.19 per share, for the first quarter ended March 31, compared with a loss of $330.3 million, or $2.04 per share, a year earlier.

Excluding items, Tesla had a loss of $3.35 per share. Analysts had expected a loss of $3.58 per share, according to Thomson Reuters I/B/E/S.

The company said it ended the quarter with $3.2 billion in cash after spending $655.7 million in quarterly capital expenses.

The lack of Model 3 revenue has exacerbated Tesla’s cash burn as the company continues to spend on its assembly line and prepares for new investments on multiple projects in the pipeline, such as the Model Y and its Gigafactory.

Moody’s, which downgraded Tesla last month, has estimated that Tesla will burn about $2 billion in cash this year.

The niche carmaker, which two years ago vowed to build 500,000 vehicles annually in 2018, has attracted legions of fans for its advanced technology and design. But the company rushed its Model 3 to market, making mistakes in manufacturing whose effects are now being felt, and investor skepticism has risen.

Tesla faces a crucial time in its 15-year history, with the company under the gun to show it can efficiently and profitably build its first vehicle intended at high volume. Musk acknowledged error recently in over-automating the Model 3 assembly-line, but it is still unclear how long and costly it will be to unwind this mistake.

Musk has also engaged in a public dispute with federal safety regulators investigating a fatality involving a Tesla vehicle operating under the company’s partially autonomous Autopilot system. Tesla has said its system was “not perfect” but that the victim was at fault for not paying attention.

(Reporting by Alexandria Sage in San Francisco and Sonam Rai in Bengaluru; Editing by Bernard Orr and Matthew Lewis)

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