Tesla Inc reassured investors that later, some profit still will be achieved. The main reason for such statement was a significant success of Model 3, that took place in the second quarter of the current year. And this, in turn, helped to save significant sums on promotion.
So, the shares of tesla Inc are growing in value. But in order to keep that trend, the corporation needs to sell more than 5,000 cars per week. Only this rate can bring a positive cash flow and, consequently, lead to profit. This promise, to sell more than 5,000 cars per week, was made in a letter addressed to investors and shareholders. However, analysts doubt a lot, that it can be kept.
Now, the losses of Tesla Inc are growing. From the second quarter of the last year, the losses of the company doubled and grew to 717.5 mln USD. But even not this is the worst news. The really bad thing about it that this is the seventh consecutive loss of the company. This all happens on the background of the fuss about the Model 3.
The goal to sell more than 5,000 cars weekly was finally achieved, in the end of June this year. Now, the company needs only to stay at that rate and generate the money that is needed so much. But this target is not only about money. The main target of the company is to prove, that such cars don’t belong to the category of luxury cars anymore. The company should be able to produce and sell millions of such cars during a year.
The way to achieve this goal took more than 15 years. Let us remind, that the main goal was to develop an affordable and reliable electric car. Profitability was a secondary target, but it was and is important, as well. and in the second half of 2018, the company expects to become not only sustainably profitable, but cash positive, as well.
After reaching the profitable level, Tesla is going to achieve that level constantly, if there are no emergencies, such as economy collapses and global financial and economic crises.
If Mr. Musk is able to comply with those promises, he will be able to calm down the investors and to move on with peace in mind. Previously, Mr. Musk was talking about raising more cash, but now, after the promising profitability data, he seems to give up that idea.
Instead of focusing on more fundraising, Mr. Musk is going to focus in paying down the debt of the company, which appeared after the company refinancing. He is going to open a new factory located in Shanghai, and it will cost about 2 bln USD. this factory is going to be financed with debt in China.
Mr. Musk insists, that the company has enough money for all its needs. However, he has to repeat it so many times, that he sounds rather upbeat. Or maybe tired?
The second quarter of the year brought the company around 2.2 bln USD in cash.
The negative cash flow was just 740 mln and was much lower than those values that were expected by analysts. The company analysts shared previously, that, in order to keep up, the company needs a minimum cash balance in the sum of 1 bln USD, and many specialists believed, that Tesla would have to raise more money.
After the quarterly report, Tesla shares grew in value for about 9%, and on Wednesday, one share was traded 327.70 USD.
The company expected that they would burn more cash in connection with the release of Model 3, and because there were lots of production expenses at the end of the mentioned quarter. All this was done to meet the desired target rate of 5,000 cars per week. And this rate will be achieved now, when Model 3 was released.
Mr. Must still has optimistic mood and holes that the company will be able to produce 1 mln cars during 2020, but still, some believe, that the maximum amount the company can make is 700,000, or maybe, in the best case, 800,000 cars during that year. Moreover, this data is proven by realistic production capabilities. For example, Tesla`s Fremont, an assembly plant in California, and Nevada factory can produce about 600,000 cars per year. Additionally, the new Shanghai facility will be able to produce 100,000 or maximum 200,000 cars per year. And this is maximum 800,000 cars per year. So, to achieve the target of 1 mln cars, Tesla would need one more factory with the capacity of Shanghai facility.
It was previously declared, that the Chinese factory will start working from 2020, but the shareholders are more realistic. They believe, that at least three years should pass before the company is able to start production. And if it is true, then, the production shall start in 2121. So, the Shanghai facility will not be able to participate in the production till 2121, which means, that the desired target or 1 mln cars per year will be even more complicated to achieve.
For now, new forecasts from Tesla are available. According to them, 6,000 Model 3s sedans per week will be produced by August, this year. There are plans to produce from 50,000 till 55,000 cars per quarter. The company still stays by the target to produce 100,000 Model S sedans and Model X sport-utility cars yearly.
The company is working hard on achieving profitability, and the main task for now is reducing the costs. So, the company fired 9% of its employees in June this year, and the management reorganization is on the way.
Further, the company reduced capital expenditures for developing Model 3. Now, the company has in plans the expenditure cuts to 2.5 bln per year, and this 3 bln less that are spend normally.
The revenues are growing. Just the second quarter brought 44% increase in revenue, which grew to 4 bln USD. the total number of cars produced increased to 40,740, which is, according to Mr. Musk, a huge increase from 22,000 cars, the production rate, that the company had earlier. This happened thanks to the introduction in production of Model 3 sedan. During the mentioned period of increase, the company sold about 18,440 Model 3s.
The hedge fund Greenlight Capital president, David Einhorn, has criticized the company heavily and wrote, that he “is happy that the Model S lease ended”. Mr. Musk wrote in his Twit, that is “Tragic. Will send Einhorn a box of short shorts to comfort him through this difficult time.”