Tesla posts $710m loss but forecasts positive revenues by end of 2018

In its first quarterly financial update of 2018, Tesla announced a net loss of $710 million but signalled that the company, headed by entrepreneur Elon Musk, is expecting to show positive revenues by Q3 or Q4 of 2018 as production ramps up of the new Model 3.

In a shareholder webinar aired last night at 10:30pm UK time, Musk displayed his usual bullish demeanor as he responded to a Q&A session with institutional and public investors following the release of the company's Q1 2018 financial results.

While the headline quarterly loss and cash burn rate of almost $400 million will have come as no surprise to investors, the Tesla board were keen to highlight the reasons for increased capital expenditure, the focus being to iron out the remaining issues on the Model 3's production line.

As widely shared by Musk since the start of the year, the company has over-automated in a number of areas. Following production bottlenecks at the Gigafactory and Freemont assembly lines, Tesla is now reverting to human input for a number of production tasks to improve throughput.

The impression given is that, with one more scheduled shutdown to go, production of the Model 3 is gradually improving. Positively, the company report a consistent run in April of over 2,200 units per week, which is around half way to hitting the 5,000 per week target required to get the company's cash flow positive. While no guarantees have been given, Must indicated that he expected this to be achieved by the end of the year at the latest.

Long term observers of the often tortuous Tesla story will know that the company has been here before, with production problems delaying product roll-outs and any return to a more healthy balance sheet. As the following chart clearly shows, cash burn peaked first with the Model S and then the Model X, before sufficient numbers of cars were delivered to customers bringing much needed revenue to the company [picture credit: arstechnica.com].

Tesla cash flow 2010-2018

The chart also show that the stakes are clearly higher with the Model 3, as are the potential rewards should all go to plan. The key question is whether Tesla can deliver the Model 3, metaphorically and literally, in sufficient numbers by the last quarter of 2018. If Musk succeeds with this challenge, Tesla will almost certainly be secure as one of the key vehicle manufacturers of the next century.

While the risks are high, it is worth remembering that Tesla has now delivered more than 100,000 Model S and Model Xs (by end 2017) and is now the global EV leader beating even BYD and Nissan on volume sales. Some established automotive players, such as Ford, are almost nowhere to be seen on fully electric car production, a situation which should cause their shareholders concern.

True to character, and possibly to calm the frayed nerves of industry investors, the Tesla update ends with a rallying call: "Model 3 is already the best-selling electric vehicle and, more importantly, on the cusp of becoming the best-selling premium sedan in the US. The path to an electrified revolution is not easy, but what we’re trying to achieve is worth fighting for."

If anyone can survive this scale of financial and technical challenges, and come out on top with a highly desirable mass-market EV, it's Elon Musk. Bets are still on that he will succeed in changing the automotive industry for good.

Listen to Dr Ben Lane, Director at Next Green Car & Zap-Map on BBC Radio 5 Live's Wake Up to Money programme discussing the Tesla financial update.

Video added 17-May-2018

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Ben Lane

Author:Ben Lane
Date Updated:3rd May 2018

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