Tesla Reports a $675 Million Q4 Loss While CEO Elon Musk Remains Optimistic

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【Summary】Elon Musk is riding high from yesterday’s successful SpaceX launch of a Tesla Roadster into space. However, shares of Tesla Motors are not faring as well as expected. Today the company reported a loss of $675 million in Q4 2017, its biggest loss ever.

Original Eric Walz    Mar 16, 2018 6:28 PM PT
Tesla Reports a $675 Million Q4 Loss While CEO Elon Musk Remains Optimistic

Elon Musk is still riding high from yesterday's successful SpaceX launch of a Tesla Roadster into space. However, shares of Tesla Motors are not faring as well as expected. Today, the electric car company reported a loss of $675 million in Q4 2017, its biggest loss ever.

Although Tesla had record vehicle production and deliveries of Model S and Model X in 2017, delays in producing the Model 3 and other issues have had an impact of Tesla's share price. However, Elon Musk remains optimistic for the first half of 2018.

At some point in 2018, Tesla expects to begin generating positive quarterly operating income on a sustained basis, the company wrote in its letter to shareholders.

The launch of Model 3 is what Tesla had been building towards from day one, according to Musk. The company incorporated all the learnings from the development and production of original Roadster, Model S, and Model X to create the world's first mass market electric vehicle that is priced on par with its gasoline-powered equivalents – even without incentives. Tesla said it is ramping up production significantly going into 2018, and is on the cusp of a step change in the world's transition to sustainability.

Orders for the Model S and Model X grew significantly in 2017 compared to 2016. There had initially been concerns about whether the Model 3 would cannibalize Model S and Model X sales. It seems the opposite is true. In its retail stores where Model 3 is on display, customer foot traffic has increased considerably and orders for Model S and Model X have increased.

In Q4, Tesla delivered 28,425 Model S and Model X vehicles and just 1,542 Model 3 vehicles, totaling 29,967 deliveries. While combined Model S and Model X deliveries in Q4 grew 10% globally compared to Q3, they grew 28% compared to Q4 2016.

Production of Model S and Model X during the quarter was limited to 22,137 vehicles due to the reallocation of some of the manufacturing resources to Model 3 production. This enabled Tesla to reduce its unsold inventory to the lowest level in about 18 months.

Targets for the Model 3 are 2,500 by the end of Q1 2018 and 5,000 by the end of Q2. Also, Tesla is are focused on achieving a target of 25% gross margin for Model 3 after production stabilizes at 5,000 cars per week.

Upcoming Coast-to-Coast Drive to Showcase Improved Autopilot

Tesla also said that an upcoming coast to coast drive across the U.S. will showcase a major leap forward for its self-driving technology, known as Autopilot. Tesla announced that an extensive overhaul of the underlying architecture of its Autopilot software has been completed, which has enabled a step-change improvement in the collection and analysis of data and fundamentally enhanced its machine learning capabilities.

Tesla's neural net, consisting of data collected by Tesla owners from their vehicles, is able to collect and analyze more high-quality data than ever before, enabling the company to update the Autopilot features in 2018 and after.

Doubling Service Capacity

The company opened 12 new store and service locations in Q4, resulting in 330 total locations worldwide. Service capacity more than doubled in 2017, partially due to new locations, but also through a 50% increase in productivity of existing service locations, as well as the significant expansion of  Tesla's Mobile Service fleet, which now has 230 vehicles.

In North America alone, Mobile Service makes up 30% of all repair jobs, allowing those customers to never have to leave their home or office to get their cars serviced. Tesla said it will continue to increase its service capacity to support the ramp up of the Model 3.

Supercharger Network Expanding

Tesla's vast supercharger network — required so owners can conveniently charge their cars — grew substantially in 2017. During the year, 338 new locations opened for a total of 1,128 Supercharger stations globally.

Between Supercharger and Destination Charging, Tesla increased charging capacity by over 90%. In preparation for Model 3, the company opened several large Supercharger stations along its most popular corridors — between Los Angeles and San Francisco and Los Angeles to Las Vegas, both of which have a customer lounge, a cafe, as well as 40 charging stalls.

A Positive Outlook for 2018

Tesla believes 2018 will be a transformative year, with a high level of operational scaling. The company expects Model S and Model X deliveries to be approximately 100,000 in total and its quarterly operating income should turn sustainably positive at some point in 2018.

In its letter to shareholders, Tesla wrote: "This year, we are starting a new chapter of our journey. Hundreds of thousands of people will switch to our EVs and many others will turn their houses into near self-sufficient energy generators. This is the year when we believe we can achieve true cost parity producing a premium EV like the Model 3 will be no more expensive than producing an ICE (internal combustion engine) vehicle, something that many believe is not yet possible. We'll continue to work as hard as we can to bring sustainable energy generation, storage and consumption into the mainstream."

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