Tesla sees end to cash-burning era as Model 3 gains traction

Tesla reported its worst-ever quarterly loss and said its Model 3 production target remains on track.

A Tesla Model 3 car is displayed during a media preview at the Auto China 2018 motor show in Beijing on April 25, 2018.
A Tesla Model 3 car is displayed during a media preview at the Auto China 2018 motor show in Beijing on April 25, 2018.PHOTO: REUTERS

SAN FRANCISCO (BLOOMBERG) - Tesla Inc forecast that it'll generate cash in the second half of this year as production of Elon Musk's critical Model 3 electric car gains traction.

The company is on track to make 5,000 of the sedans a week in about two months, according to a letter to shareholders on Wednesday (May 2). Tesla reported quarterly revenue that beat analyst estimates and said it produced the Model 3 at a rate of more than 2,000 units for three straight weeks in April.

Musk, 46, first unveiled the Model 3 sedan more than two years ago but has pushed back manufacturing targets several times. The slower rate of output has limited the amount of money coming in from customers taking delivery and tested Tesla's balance sheet. But prospective patrons have showed patience - there are still more than 450,000 reservation holders for the car, and customer deposits keep rising.

"We have good visibility of our path to fully ramp and stabilize Model 3 production this year," Musk wrote in the letter also signed by chief financial officer Deepak Ahuja. "The path to an electrified revolution is not easy, but what we're trying to achieve is worth fighting for."

While Tesla expressed confidence about the second half of the year, free cash flow went in the wrong direction in the first three months. The company burned through US$1.05 billion, the third time in the last four quarters it's gone through more than US$1 billion. That was also worse than analysts' average estimate of about US$978 million.

Tesla had US$2.67 billion in cash on hand at the end of the first quarter, down from the US$3.37 billion at the end of last year. The company reported a loss of US$3.35 a share on revenue of US$3.41 billion, both better than analysts' estimates.

The shares were little changed at US$300.98 as of 5:08pm in New York, after the close of regular trading.

Tesla expects to pause Model 3 production for about 10 days this quarter, including a shutdown in April to resolve bottlenecks. While its battery module line was the main issue plaguing output for months, that's been resolved. Musk now expects to be able to make 5,000 cars' worth a week before installing an automation system from its German manufacturing unit Grohmann.

"This is a positive report," said Tasha Keeney, an analyst at ARK Investment Management, which holds Tesla shares. "Investors are focused on manufacturing and Tesla needs to perfect that piece of the puzzle."