Despite Tesla reporting a record loss in the second quarter, its shares rose over 8% in after-hours trading, as investors focused on rising production volumes and a slower rate of cash burn.
The company cut its capital spending plans and said it would not hit its long-term rate of producing 10,000 Model 3s per week until next year, a trade-off that may soothe concerns it needs to raise more cash fast.
Tesla said that during July it had “multiple times” hit its earlier goal of building about 5,000 Model 3s per week, and reiterated a target of producing 6,000 per week by late August. Analysts have questioned whether that 5,000 rate would be sustainable.
Musk is under intense pressure to prove he can deliver consistent production numbers for the new sedan, Tesla’s lowest-cost model and the key to its plans to become a mass-market automaker. It has faced a host of manufacturing challenges since last year.
It expects to build a total of up to 55,000 Model 3s in the third quarter, which works out to an average weekly rate of 4,230 Model 3s. It said it aims to build them at a roughly 15% gross margin in the third quarter, rising to 20% in the fourth.
“We like the more muted tone of the company’s outlook, with the absence of unnecessary new stretch goals,” said CFRA analyst Efraim Levy. “Perhaps it reflects a more cautious Elon Musk.”
Tesla said demand for the Model 3 remained strong. It delivered its 200,000th electric car – including its more expensive Model S and X vehicles – in July, a threshold which means a US$7,500 federal subsidy will remain in place to the end of the year.
The company has consistently denied it will need to raise cash but several Wall Street analysts expect a move by the end of the year.
Tesla ended the second quarter with US$2.78 billion in cash after spending US$610 million in quarterly capital expenses. It had ended the first quarter with US$3.2 billion in cash after spending US$656 million in capital expenses.
Free cash flow, a key metric of financial health, narrowed to negative US$740 million in the second quarter from negative US$1 billion in the first quarter, excluding costs of systems for its solar business.
“This is enough to put them in positive cash flow territory on an operating basis,” said Ross Gerber, co-founder and CEO of Gerber Kawasaki Wealth and Investment Management, which owns 38,000 Tesla shares.
The company last quarter cut its spending forecasts and Tesla has begun to lay off 9% of its workforce. Tesla said its capital expenses would be slightly below US$2.5 billion in 2018, less than last year’s US$3.4 billion.
Still, Tesla’s second-quarter loss more than doubled to a record US$717.5 million, or US$4.22 per share.
Shanghai factory
Tesla is currently producing more expensive versions of its Model 3 that start at about US$49,000.
It recently opened up reservations for the vehicle, allowing new buyers of the pricier models to jump ahead of those who had ordered base models of the vehicle two years ago. That angered some deposit-holders, and analysts questioned whether more would drop out because of delays making the cheaper US$35,000 version of the sedan. Tesla said in July there were about 420,000 reservations for the Model 3, and did not update that number on Wednesday.
It did give new details about its plan to build a factory in Shanghai producing both vehicles and batteries. It said Tesla’s initial investment would not start “in any significant way” until 2019, with much expected to be funded via local debt.
Beyond the production worries, Musk’s behaviour has come under scrutiny in recent months, in part after he dismissed financial analysts on the previous quarter’s conference call as boring, sparking a sell-off, and lashed out on Twitter at critics.
Musk’s tweet last month calling a British diver working on the cave rescue of Thai schoolboys a “paedo guy,” or paedophile, elicited a rare rebuke from Tesla’s fourth-largest shareholder, Baillie Gifford, that Musk should stop tweeting and focus on executing the company’s business at hand.
Musk apologised to the diver. On Wednesday he also apologised to analysts for his behaviour on the previous quarter’s call.
Excluding items, Tesla reported a loss of US$2.45 per share, compared with expectations of a loss of US$2.92.
Total revenue rose to US$4 billion from US$2.79 billion.
Tesla shares were up over 8% at US$325.30 in after-market trading on Wednesday. The stock has slumped 19% since a 2018 high of US$370.73 in June.