Published: Thu, August 02, 2018
Markets | By Otis Pena

Tesla cuts losses on Model 3 sales, Musk promises profits next quarter

Tesla cuts losses on Model 3 sales, Musk promises profits next quarter

Tesla's finances are so dicey that the largest quarterly loss in the company's history couldn't bring investors down. That put it on track to retake the title of most valuable US automaker from General Motors Co (GM.N). For the full third quarter, Tesla expects to build 50,000 to 55,000 Model 3 sedans, and deliveries should exceed the company's production total, according to a letter to shareholders.

Musk tweeted in April that the company's profitability would mean it would have "no need to raise money", but the company now has billions of dollars in debt, including more than $1 billion that will need to be paid or refinanced within the next year.

"Due to the density of the line and the relatively high downtime of the lifters, ramping [main general assembly line] GA3 became substantially more complicated than we had anticipated", the company noted.

Tesla had to put some Model 3 production in a tent outside its Fremont facility, but it was necessary at the time to hit that all-important production goal of 5,000 Model 3s per week. Analysts have questioned whether the 5,000 rate would be sustainable.

The company said it finished the second quarter with $2.78 billion in cash, and vowed to turn profits in the third and fourth quarter of 2018 - a promise previously made by CEO Elon Musk.

Tesla delivered its 200,000th electric auto - including its more expensive Model S and X vehicles - in July, a threshold which means a $7,500 federal subsidy will remain in place to the end of the year.

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Tesla's second-quarter financials are out, and things are looking OK, but next quarter is when things will get truly interesting.

Last month, Tesla opened up reservations for the closely-watched Model 3, allowing new buyers of pricier models to jump ahead of those who had ordered base models of the vehicle two years ago. Oh, and the volume control on the Tesla Model S goes all the way to 11. That was worse than Wall Street estimates. Tesla has also asked parts suppliers for refunds.

Tesla ended June with about $US2.2 billion in cash on its balance sheet.

Tesla has begun to lay off 9 percent of its workforce as it tightens spending.

While the new milestone is only slightly higher than the previous one, the contrast is more drastic in comparison to the same period past year.

As Tesla looks to real profitability in the coming quarters and years, controlling costs is extremely crucial in the automotive business. The company claims $2.2 billion in cash at the end of the second quarter, and it expects that figure to grow in Q3.

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