Tesla Willing to Lose Money as Part of Planned Strategy

It’s not uncommon for companies to lose money while building plans for the future, but Tesla appears to be prepared to take quite a financial hit as it plans to expand.

The company has stated that it plans to expand its electric-vehicle offerings into trucks and busses, as well as also expanding into the car-sharing business. Tesla CEO Elon Musk said Tuesday that this could cost the company “tens of billions” in the long run but would only need a “modest” capital raise to offset it.

SEE ALSO: Tesla Claims to Have ‘World’s Fastest’ Charger with 145 Kilowatt Supercharger Rollout

Musk spoke at an open house for media at Tesla’s gigafactory in Nevada. Right now, Tesla is losing money and facing public relations fallout from the investigations into the death of a Tesla owner who was killed in an accident while using the company’s Autopilot semi-autonomous driving system.

SEE ALSO: Tesla Second-Quarter Results a Mixed Bag

Undeterred, Musk unveiled the expansion plan last week. Musk said that since the plan will take years to rollout, sales of the upcoming Model 3, which is set to launch in 2017, could be used to fund it.

That’s because Musk believes the Model 3 will bring in $20 billion in revenue per year along with $5 billion in gross profit once the full production capacity of 500,000 vehicles is reached.

“It’s possible to fund quite a bit with that,” Musk said.

Musk told the media that engineering on the Model 3 is finished and that the company believes it will launch as scheduled next summer.

Musk’s focus has pivoted to the gigafactory. He told reporters that the plant, which is costing $5 billion to be built, in a joint venture with Panasonic, could support up to 1.5 million EVs per year with an eventual battery-cost reduction to $100 per kilowatt hour by 2020.

General Motors has already publicly said its planning to pay $145 per kilowatt hour for the batteries (supplied by LG Chem) for the upcoming Chevrolet Bolt, which will be priced at $35,000, putting it in the same price range as the Model 3. The Bolt is expected to launch this year, about a year ahead of the Model 3.

Earlier this month, Tesla said that its deliveries fell short of forecasts. With second-quarter fiscal results to be released on August 3, analysts and investors will look to see if Tesla is slowing the rate at which it burns through cash while also bringing costs in line.