Tesla earned – and spent – more money than ever before in Q1 2018
Electric vehicle manufacturer Tesla published its quarterly earnings report for Q1 2018, and at first glance, it presents a rather conflicting picture. In the first quarter of the year, Tesla earned more money than ever before, with total revenues hitting a record of $3.4 billion. Out of this, automotive revenue, the company’s earnings from its vehicle vertical, hit $2.7 billion, only a 1 percent increase from the previous quarter, but a 19 percent increase year-on-year. However, Q1 2018 also saw Tesla’s costs rocket to new heights, resulting in the company’s biggest loss ever of $784.6 million.
From the report, it is clear that Tesla is attracting a lot of money through sales, but is also burning through cash at an alarming rate.
Tesla’s current flagship product is the Model 3 sedan, which was revealed in 2016. Since its reveal, the car’s production has run into multiple problems, including cost overruns and production delays. The first batch of the sedans – with 30 vehicles – was delivered in July 2017, and Tesla was able to make a total of 1,764 deliveries in 2017. In its report, Tesla stated that it had managed to produce more than 2,000 vehicles per week for three straight weeks, and expressed a positive outlook for the vehicle’s future production, despite recent issues with automation.
In a letter to investors and shareholders accompanying the report, Tesla Founder and CEO Elon Musk wrote, “Even at this stage of the ramp, Model 3 is already on the cusp of becoming the best-selling mid-sized premium sedan in the US, and our deliveries continue to increase. Consumers have clearly shown that electric vehicles are simply more desirable when priced on par with their internal combustion engine competitors while offering better technology, performance, and user experience.” Elon also added that following previous cycles, Tesla plans to shut its production plant for the Model 3 for some scheduled downtime in Q2 2018. The company has previously used its breaks to analyse the production line and to make it more efficient.
While the Model 3 usually grabs most of the headlines about Tesla’s product line, Elon was also quick to point out that the company’s Model S and Model X vehicles also continue to see high demand. Tesla produced 24,728 Model S and Model X vehicles in Q1 2018, delivering 21,815 of them. The company expects production numbers to stay around the same level for Q2 2018 but said it aims to ramp up production in Q3 2018 to meet its avowed target of 100,000 deliveries by the end of 2018.
Elon has previously said that he does not expect to have to raise capital for Tesla in 2018, expecting sales from the Model 3 to ramp up and buoy the company’s bottom line. However, as the company’s record losses in Q1 2018 show, it is far from being profitable. Tesla is facing $1 billion of bond payments to come due over the coming year, with $230 million due in November and $920 million next March. Moody’s downgraded Tesla to junk bond status in March this year, and S&P has warned of a possible downgrade as well. Nevertheless, Tesla has posted a positive outlook, with the investor letter stating that the company expects to be profitable in Q3 and Q4.
Tesla has found itself at the heart of multiple controversies recently, such as when a Model X owner died in an accident involving the car’s Autopilot mode, as well as a public spat with the National Transportation Safety Board (NTSB) in April. However, Elon is confident of the company’s future, with the Model 3 leading the way to profitability. In the investor letter, he signs off, “Model 3 is already the best-selling electric vehicle and, more importantly, on the cusp of becoming the best-selling premium sedan in the US. The path to an electrified revolution is not easy, but what we’re trying to achieve is worth fighting for.”