Tesla outlook disappoints some on Wall St, shares drop 7 percent

Tesla Motors Inc , led by billionaire Elon Musk, on Wednesday offered an outlook for the second quarter that disappointed some investors, sending shares down 7 percent in after-hours trading.

Tesla posted a higher-than-expected first-quarter operating profit and said its operating automotive gross margins in the current quarter would increase slightly. S&P Capital IQ analyst Efraim Levy called the outlook a disappointment, saying investors had hoped for something better.

The Palo Alto, California-based company reported a first-quarter net loss of almost $50 million, compared with last year's first-ever quarterly profit.

Tesla said it would spend up to $850 million this year to boost production capacity of its Model S luxury electric sedan, develop the Model X crossover vehicle and start construction of a new lithium-ion battery plant, dubbed the "gigafactory." It said that would leave the company with a negative free cash flow for 2014.

Like other so-called momentum stocks, Tesla's shares have fallen recently and at the close of the market on Wednesday were down more than 20 percent from an all-time of $265 in mid-February. In after-hours activity, Tesla shares traded at $187.07, after closing at $201.35.

The company said the project to begin production of lithium-ion batteries at the plant is on course for 2017.

"We have not yet finalized the ultimate location for the gigafactory and we are going to start work on at least two locations in parallel in order to minimize risk of delays arising after groundbreaking," Musk said in a letter to shareholders posted online.

He also said discussions with battery supplier Panasonic Corp <6752.T> and other potential partners for the plant "continue to go well and we are pleased with the high interest level in the project." Analysts have said Tesla needs to get the plans for the plant finalized soon if it wants to meet its 2017 production target.

Excluding one-time items, Tesla earned $17 million, or 12 cents a share, in the quarter, two cents better than what analysts polled by Thomson Reuters I/B/E/S had expected. The results included a currency gain of $6.7 million.

On a net basis, Tesla lost $49.8 million, or 40 cents a share, compared with a profit last year of $11.25 million, or 10 cents a share. Net revenue rose 10 percent from last year to almost $621 million, while operating revenue was up 27 percent at $713 million.

Tesla said it delivered 6,457 Model S cars in the first quarter, slightly above the 6,400 it had forecast in February. It also reiterated its full-year delivery target of more than 35,000 cars, including its forecast of about 7,500 cars in the second quarter.

Tesla also said battery cell supply will still constrain company vehicle production in the second quarter but that situation should improve in the third quarter.

(Reporting by Ben Klayman in Detroit; Editing by Steve Orlofsky and James Dalgleish)