Tesla Says Revenues Up and Model 3 Is On Track

Yesterday Tesla reported revenue according to generally accepted accounting principles of $2.7 billion, up from $1.6 billion last year, with a larger net loss than expected.

Shareholders are watching carefully to see how Tesla handles the launch of the Model 3, which CEO Elon Musk affirmed is on schedule for production starting in July. Critics warn that the electric automaker won’t be able to hit the grand target of producing 500,000 vehicles starting next year, which would be six-times Tesla’s 2016 production.

Musk spent some of his time yesterday on a conference call clarifying the difference between the Model S and the Model 3. Selling upscale option packages on the Model S and Model X have been a big part of Tesla’s revenue climbing in the past year. Musk wants to make sure the more affordable Model 3 doesn’t hurt luxury sales.

Model 3 prototype.

“We have seen some impact of Model S orders as a function of people being confused” that Model 3 is the upgrade to Model S, he said.

While record deliveries drove up revenue, the company also felt the impact of the SolarCity acquisition in late 2016. Tesla’s net loss increased to $330.3 million from $282.3 million a year earlier, largely driven by the SolarCity closure.

The company said cash flow is strong for the second quarter with about $4 billion available for capital expenditures. Tesla reported that slightly over $2 billion would be needed on hand to start Model 3 production. That was down from a previous corporate target of $2 billion to $2.5 billion.

Having that extra cash cushion places the automaker on strong footing that should avoid having to tap into Wall Street for more cash, said CFRA Research analyst Efraim Levy.

Analysts expect that successfully hitting the 500,000 production target with sales will shake off the company’s history of reporting losses. Tesla hopes to balance a successful launch of the Model 3 without cannibalizing sales of the Model S and Model X, which sell for more than double the starting price of the $35,000 Model 3.

Musk hopes to eliminate misperceptions, and emphasized that buyers will get what they pay for.

“We want to be super clear that Model 3 is not version three of our car. Model 3 is essentially a smaller, more affordable version of the Model S with fewer features,” Musk said on the conference call.

He hopes to educate car buyers, who have erroneously thought the Model 3 would be more advanced.

“The Model S will be better than Model 3,” he added. “As it should be, as it’s a more expensive car.”

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To serve the growing number of Tesla owners expected by next year, the company will be adding about 100 retail, delivery, and service locations worldwide. That will make for a 30-percent increase in its network.

Improving efficiency is also a goal, with Tesla reporting that repair times have fallen by 35 percent from using remote diagnostics.

Tesla is sticking to its forecast of delivering 47,000 to 50,000 Model S and Model X unites during the first half of 2017.

Customer deposits dropped 7 percent during the quarter. Tesla may be seeing a decrease in demand for its current products as anticipation for the Model 3 plays out.



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