Tesla Sticks by Model 3 Target, Warns Spending Could Rise in 2018

Tesla Sticks by Model 3 Target, Warns Spending Could Rise in 2018

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A Tesla dealership is seen in West Drayton, just outside London
A Tesla dealership is seen in West Drayton, just outside London, Britain, February 7, 2018. REUTERS/Hannah McKay

By Alexandria Sage
SAN FRANCISCO (Reuters)

Tesla Inc said on Wednesday it was sticking with Chief Executive Elon Musk‘s revised production targets for its Model 3 sedan, cheering investors who have put up with two delays, but the electric automaker‘s plans to raise spending this year underscored its growing need for cash

Reflecting the mixed fourth-quarter report, shares of the Palo Alto, California-based company, which are up 10 percent since the start of the year, were barely changed in extended trading.

Money-losing Tesla‘s long-term viability depends on annually selling billions of dollars of Model 3s, the new sedan that starts at $35,000, about half the price of its flagship Model S. Tesla said that net reservations for the new model were stable during the fourth quarter.

 

A Tesla dealership is seen in West Drayton, just outside London
A Tesla dealership is seen in West Drayton, just outside London, Britain, February 7, 2018. REUTERS/Hannah McKay

 

Production delays blamed on battery issues resulted in only 1,550 deliveries in the fourth quarter, far below the 4,100 vehicles expected by analysts – meaning revenue from the highly anticipated vehicle has yet to hit Tesla’s bottom line.

But obstacles to production of 5,000 vehicles by the end of the second quarter “were getting smaller with every week,” Musk told analysts on a conference call. Once at that production rate, Tesla could begin to generate sustained positive operating income “at some point in 2018,” Musk said.

“I’m cautiously optimistic that we will actually be GAAP profitable with no asterisk,” he added. Using that accounting method, Tesla lost nearly $2 billion last year.

Tesla posted its biggest-ever quarterly loss, but the loss was not as wide as analysts were expecting, and revenue just topped targets.

 

CASH BURN

Musk reiterated a bold goal to produce 1 million vehicles annually by 2020, with plans to make capital investments related to the upcoming Model Y SUV toward the end of this year. Nearly two years ago, Musk proclaimed that Tesla would produce 500,000 vehicles in 2018, which Model 3 troubles has made near impossible.

 

 

Analyst Jamie Albertine at Consumer Edge Research said there was a trade-off between accelerating growth and vehicle quality, and it was better not to rush Model 3 production and risk a recall. Tesla’s reiteration of its production target for the quarter was good news, he said.

Tesla Chief Financial Officer Deepak Ahuja said that more than 50 percent of Tesla’s spending was on the Model 3, underscoring that project’s importance and its high cost.

 

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