Tesla teeters on the brink

Tesla is aiming to double its production of the Model 3 to 10,000 units a week.
Tesla is aiming to double its production of the Model 3 to 10,000 units a week.PHOTO: NYTIMES

The carmaker's second-quarter losses were lower than analysts' estimates, but can it turn profitable?

CALIFORNIA • Tesla said on Wednesday that it had burned less cash than expected during the second quarter of the year and was nearing profitability, a long-doubted goal for the beleaguered carmaker racing to boost production of its all-electric cars.

It said it had made US$4 billion (S$5.47 billion) in car, battery and leasing revenue during the second quarter, a sharp increase over the same quarter last year because it had finally introduced its newest Model 3 sedan. The stock climbed about 4 per cent in after-hours trading.

Tesla's second-quarter losses of US$743 million were lower than analysts' estimates of about US$900 million. But its cash burn extended a money-losing streak for chief executive Elon Musk during one of the company's most challenging years.

The results marked a critical moment for a US$50-billion company long believed to be on the brink. It was the last financial update before the second half of the year, when Mr Musk had vowed the company would be profitable.

"It took 15 years to execute our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable," he wrote in a shareholder letter on Wednesday. "In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive."

Mr Musk tweeted in April that the company's profitability would mean it would have "no need to raise money", but the company currently has billions of dollars in debt, including more than US$1 billion that will need to be paid or refinanced within the next year.

Tesla is the United States' youngest major carmaker and has at times been valued more than General Motors and the other Detroit auto giants it has pledged to disrupt.

But it is also the most heavily shorted company on Wall Street, with an army of investors betting billions that the cash-burning company's turbulence would ensure its imminent collapse.

The company's cash reserves have dropped to US$2.2 billion, down from US$3.3 billion at the end of last year. In June, Mr Musk said the company would reduce costs by laying off 9 per cent of its workforce. Tesla's stock has fallen more than 18 per cent since its June peak.

Tesla clinched a long-delayed milestone in late June when it announced it had built more than 5,000 of its Model 3 sedans in a week - a pace Mr Musk has said would quickly shepherd the company into profitability. In celebrating that goal, he upped the ante, saying the company would produce 6,000 a week by the end of this month.

Tesla said on Wednesday that its lone carmaking factory in Fremont, California, had made 5,000 Model 3 sedans a week multiple times last month and should be able to continue at that rate through the third quarter of the year.

"We aim to increase production to 10,000 Model 3s per week as fast as we can," Mr Musk wrote in the Wednesday letter, though he offered no estimated timeline.

The company has struggled to deliver the Model 3, which critics have celebrated as a "modern marvel", at a price cheap enough to win over new buyers who have been priced out of Tesla's luxury line. Though promised as a US$35,000 mass-market car, the only models available now sell for about US$50,000 or more.

Tesla also faces broader challenges that could make its cars more difficult to sell. The company's sale of its 200,000th vehicle last month triggered the phase-out period for a US$7,500-a-car federal tax credit granted by the Obama administration to encourage the sale of electric cars. That credit will be halved for Tesla buyers next year and dwindle to zero in the following months.

The rocky results released on Wednesday will probably encourage Tesla sceptics who have criticised the company as under-delivering on its promise of reshaping the auto industry.

In a letter to clients on Tuesday, billionaire hedge-fund manager David Einhorn criticised Tesla's manufacturing sprint and questioned "whether customers will be happy with the quality of a car rushed through production to prove a point to short sellers".

Mr Einhorn, a short-seller who had bet against Tesla's stock, also said he would not renew his own lease on a Model S, blaming touchscreen and window problems.

Mr Musk responded to the news on Twitter early Wednesday by saying he would send Mr Einhorn "a box of short shorts to comfort him through this difficult time".

WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on August 04, 2018, with the headline 'Tesla teeters on the brink'. Print Edition | Subscribe