Tesla Loss Widens But Beats Expectations -- 2nd Update

By Tim Higgins Features Dow Jones Newswires

Tesla Inc.'s second-quarter loss was narrower than analysts' expectations, buoying the Silicon Valley auto maker as it ramps up production for its first all-electric sedan designed for a mainstream audience.

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The Palo Alto, Calif., company reported a loss of $336 million, compared with a loss of $239 million a year earlier. On an adjusted basis, the company's per-share loss of $1.33 beat the $1.82-a-share loss predicted by a consensus estimate of analysts surveyed by Thomson Reuters.

Revenue more than doubled to $2.79 billion, besting the analysts' average projection of $2.51 billion.

Deliveries of the Model S sedan and Model X sport-utility vehicle rose to about 22,000 during the quarter, a 53% gain from the same quarter in 2016 but shy of 23,655, the average estimate of analysts surveyed by The Wall Street Journal. The company has said it expects sales in the second half of the Model S and Model X to exceed the 47,000 vehicles it delivered during the first six months of the year.

Tesla's shares were up 6.3% in after-hours trading to $346.54. The stock has been on a tear this year, rising more than 50% amid the enthusiasm for the Model 3 sedan, which Tesla moved into production last month.

Investors and analysts have expressed concern that buyers' anticipation for the $35,0000 Model 3 is eating into demand for the Model S, which typically sells for around $100,000. But Tesla aimed to calm those nerves on Wednesday in a letter to shareholders, saying orders for both the large Model S sedan and Model X SUV have been increasing leading up to and after a July 28 event during which Chief Executive Elon Musk shared greater details about the new smaller car.

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"This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of this year," Mr. Musk said in the letter.

At last week's event -- where Tesla celebrated the first 30 Model 3s being handed over to employee-buyers -- Mr. Musk said he plans for the factory to reach a production rate of 500,000 annually next year. He is aiming to build 20,000 in December. Tesla built about 84,000 vehicles in 2016.

Following the event, Tesla said it was averaging 1,800 Model 3 reservations a day.

Tesla said last week that nonemployee customers may receive the first Model 3s in September or October. On Wednesday, Tesla said deliveries to nonemployees will begin in the fourth quarter. International deliveries will begin in late 2018, starting with left-hand-drive markets, followed by right-hand- drive markets in 2019, according to Tesla.

The company didn't end up spending as much to prepare for production of the Model 3 in the first half as expected. In May, Tesla said it planned $2 billion in capital expenditures but ended up spending $959 million in the second quarter after spending $553 million during the first. The lower-than-expected spending was primarily because of the timing of milestone-based cash payments, Tesla said.

Tesla expects to spend $2 billion during the second half as those payments become due and as it expands its infrastructure. While the company did boost spending to prepare for the Model 3, it cut operating costs from the first quarter. The auto maker said it faced a net-loss increase between quarters because of higher currency costs.

Optimism for Tesla has helped propel the company's market value this year above that of Ford Motor Co. and, at times, General Motors Co.

But in recent weeks, Mr. Musk has worked to tamp down expectations, warning fans at last week's event that the auto maker was entering "manufacturing hell" for the next six months as he ramps up assembly.

He said Friday the company has more than 500,000 reservations for the Model 3 and reiterated that new orders wouldn't be filled until late next year.

Mr. Musk is betting the arrival of the $35,000-base-price sedan will help remake the company as a more mainstream auto maker, ushering in an age of more affordable and popular electric cars.

Pricing details revealed last week show that buyers can pay as much as $59,500 for a version of the Model 3 with a long-range battery and other premium features. The long-range Model 3 costs $44,000 and can go 310 miles per charge, more than GM's Chevrolet Bolt and more than the lowest-price Model S.

In many ways, the Model 3 is aimed at the buyers of BMW AG and Daimler AG's Mercedes-Benz compact cars. The average transaction price of an entry-level luxury car last month in the U.S. was $41,831, while BMW's 3 Series sold on average for $43,023 and the Mercedes-Benz C-Class sold for $48,571, according to researcher Edmunds, which tracks new car sales.

Write to Tim Higgins at Tim.Higgins@WSJ.com

Tesla Inc. worked to calm investor nerves Wednesday, stressing that orders for its two older and more expensive vehicles have accelerated lately despite the arrival of the cheaper Model 3 compact car.

In its second-quarter report, the Silicon Valley electric-car company reiterated it plans to sell more of the Model S sedans and Model X sport-utility vehicles during the second half than the first six months of the year, and it expects revenue to swell while operating costs hold steady.

The company ended the quarter with $3 billion in cash on hand after spending less during the April through June period than expected. That along with cash being generated during the second half should provide enough money to pay for Tesla's ambitious spending projects and give it enough flexibility during the Model 3 ramp up, Chief Executive Elon Musk told shareholders in a letter.

Tesla's stock has been on a tear this year -- rising more than 50% this year and sending its market value above that of Ford Motor Co. and, at times, General Motors Co.--amid enthusiasm for the Model 3. The new car, which Tesla moved into production in July, is designed to remake the company as a more mainstream auto maker, ushering in an age of more affordable and popular electric cars.

But investors and analysts have expressed concern that buyers' anticipation for the $35,000 Model 3 could cannibalize sales of the older models. Those concerns were stoked in July when Tesla reported second-quarter deliveries of the Model S sedan and Model X sport-utility vehicle came up short of analysts' expectations. The shares fell about 13% since then ahead of Wednesday's announcement.

Tesla said Wednesday the orders for the two older vehicles in July rose 15% higher than the company's average weekly order rate during the second quarter, and orders for the Model S were increasing even more in the days after an event Friday celebrating the handoff of the first 30 Model 3s. "This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of the year," Mr. Musk told shareholders.

Investors liked what they heard on Wednesday, sending Tesla's stock up over 8% in after-hours trading.

"We believe this was a better-than-expected quarter," James Albertine, an analyst for Consumer Edge Research, said in a note.

Mr. Musk was further helped by a second-quarter loss that was narrower than analysts' expectations. The Palo, Alto, Calif., company reported a loss of $336 million, compared with a loss of $239 million a year earlier. On an adjusted basis, the company's per-share loss of $1.33 beat the $1.82-a-share loss predicted by a consensus estimate of analysts surveyed by Thomson Reuters.

Revenue more than doubled to $2.79 billion, besting the analysts' average projection of $2.51 billion. Tesla said it cut its operating costs during the second quarter from the first quarter while it facing higher currency costs, which contributed to its net loss increasing from the first quarter.

In recent weeks, Mr. Musk has worked to tamp down expectations for the Model 3, warning fans at Friday's event that the auto maker was entering "manufacturing hell" for the next six months as he ramps up assembly. He reiterated that comment on Wednesday's earnings call -- "When I meant production hell, I meant it"--but said investors shouldn't expect any significant negative surprises.

Mr. Musk said Friday Tesla has more than 500,000 reservations for the Model 3 and reiterated that new orders wouldn't be filled until late next year.

Greater pricing details revealed last week show buyers can pay as much as $59,500 for a version of the Model 3 with a long-range battery and other premium features. The long-range Model 3 costs $44,000 and can go 310 miles per charge, more than General Motors Co.'s Chevrolet Bolt and more than the lowest priced Model S.

In many ways, the Model 3 is aimed at the buyers of BMW AG and Daimler AG's Mercedes-Benz compact cars. The average transaction price of an entry-level luxury car in July in the U.S. was $41,831 while BMW's 3 Series sold on average for $43,023 and the Mercedes-Benz C-Class sold for $48,571, according to researcher Edmunds, which tracks new car sales.

Following the event, Tesla said it was averaging 1,800 Model 3 reservations per day.

Tesla had said Friday that nonemployee customers may receive the first Model 3s in September or October. But on Wednesday, Tesla said deliveries to nonemployees will begin in the fourth quarter. International deliveries will begin in late 2018, starting with left-hand drive markets followed by right-hand drive markets in 2019, according to Tesla.

The company didn't spend as much capital to prepare for production of the Model 3 in the first half as expected. In May, Tesla said it planned to spend $2 billion in capital expenditures but ended up spending $959 million in the second quarter after spending $553 million during the first quarter. The lower- than-expected spending was primarily because of the timing of milestone-based cash payments, Tesla said.

Tesla expects to spend $2 billion during the second half as those payments become due and as it expands its infrastructure.

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

August 02, 2017 19:49 ET (23:49 GMT)