Tesla CEO Elon Musk says Company is on Track to Build 6,000 Model 3's Per Week

author: Derrick Smith   

Electric automaker Tesla released in its Q2 earnings today, and depending on who you ask, the numbers are not so bad. The company reported losses of $2.45 per share, slightly better than the $2.92 per share analysts predicted. Total revenue rose to $4 billion from $2.79 billion, beating the $3.92 billion in revenue forecasted by Reuters.

Since Q1, Tesla has been working through what it called ‘production bottlenecks', which delayed it planned ramp up of Model 3 production to 5,000 cars per week to June. Tesla finally reached its goal on the last day of June. The mass-market Model 3 is essential to Tesla's planned path towards profitability.

"A total vehicle output of 7,000 vehicles per week, or 350,000 per year, should enable Tesla to become sustainably profitable for the first time in our history - and we expect to grow our production rate further in Q3," Said CEO Elon Musk.

Musk is under intense pressure to prove he can deliver consistent production numbers for the sedan. Tesla's lowest-priced model and the key to its plans to become a mass-market automaker. The company endured a host of manufacturing challenges, including constructing a tent outside its Fremont, California headquarters to house a hastily put together assembly line designed help speed up Model 3 output.

The company cut its capital spending plans and said it would not hit its long-term rate of producing 10,000 Model 3s per week until next year, trading off production ramp up to increase its financial health.

"We like the more muted tone of the company's outlook, with the absence of unnecessary new stretch goals," said CFRA analyst Efraim Levy. "Perhaps it reflects a more cautious Elon Musk."

Musk was in a much better mood that he was at the Q1 earnings call where he refused to answer what he called "boring" questions from reporters. Musk spoke cautiously and even apologized several times on Wednesday during a post-earnings call for his past behavior.

Tesla said that during July it had hit an earlier goal of building about 5,000 Model 3s per week "multiple times", and reiterated a target of producing 6,000 per week by late August. However, analysts have questioned whether the 5,000 rate would be sustainable.

Tesla delivered its 200,000th electric car - including its more expensive Model S and X vehicles in July, which means a $7,500 federal subsidy set to expire will remain in place to the end of the year.

The credit was allocated for the first 200,000 cars any given manufacturer sells to help encourage the switch to cleaner electric vehicles. After a carmaker reaches sales of 200,000 units, the credit is phased out in stages. It's available in full for the rest of that quarter and the following quarter.

Beginning next year, the credit drops $3,750 for six months, then drops to $1,875 for an additional six months before it is eliminated.

Had Tesla delivered its 200,000th car a month earlier in June, the subsidy would have ended a quarter earlier. Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management, which holds Tesla shares applauded the move, which extending the $7,500 federal tax credit for the remainder of the year.

Model 3 Reservation Holders Still Waiting

Tesla has only produced higher-cost versions of the Model 3, starting at $49,000. Musk reiterated his confidence in the Model 3 as a mass-market electric vehicle. He said many of the trade-ins it received were mass-market vehicles, including the Toyota Prius, Honda Accord and the BMW 3-Series.

Tesla recently opened up reservations for the more expensive Model 3, allowing buyers wishing to purchase the high-performance models to jump ahead of those already in the reservation queue for the long-awaited base model.

The move angered reservation holders, some of whom waited over two years for delivery of their Model 3. Tesla first opened up reservations in March of 2016, but so far only delivered higher priced Model 3 sedans, which start at $49,000. The base Model 3 starts at $35,000 before incentives.

Wall Street analysts have also questioned whether Tesla would need to raise more cash, but Musk said on the call that he expected the company to be profitable and cash flow positive going forward, excluding some debt repayment, and had no plans for an equity raise.

Tesla has begun to lay off 9 percent of its workforce as it reigns in spending. Tesla said its capital expenses would be slightly below $2.5 billion in 2018, less than last year's $3.4 billion.

The company also outlined expansion plans, saying it would likely announce the location of a European battery factory this year, as well as a Shanghai, China plant to produce both vehicles and batteries.

Tesla said that its China investment would not start "in any significant way" until 2019, with much of the roughly $2 billion cost to be funded via local debt.

Despite Tesla reporting a record loss that doubled to $718 million in the second quarter, shares jumped as much as 11 percent in after-hours trading today, as rising production volumes and a slower rate of cash burn entice investors.

Tesla is now back on track to become the most valuable U.S. automaker once again, a title now held by General Motors, which is valued at $52 billion—$3 billion more than Tesla.

Derrick Smith