Published: Sat, July 27, 2019
Markets | By Otis Pena

Tesla loss shows perils of making more affordable Model 3

Tesla loss shows perils of making more affordable Model 3

Despite falling short of expectations, Tesla reaffirmed full-year delivery guidance stating that the company still believes it will sell 360,000 to 400,000 vehicles in 2019 mostly consisting of Model 3 sedans. Lately, the company brought a lot of cheer to its investors after it reported a record number of deliveries in the second quarter this year. In September 2018, both Tesla and Musk agreed to pay $40 million - $20 million every - in penalties to the Securities and Exchange Price (SEC) to decide on fraud charges.

Because J.B. Straubel was considered the second most important person at the company with hands on all technical projects (especially batteries), the move is a huge change for Tesla.

Straubel reiterated that he was not fully leaving the company.

While Tesla posted profits in the second half of past year, 2019 has been turbulent.

While it looks huge on its face, this amount is 42 percent lower than the huge $702 million loss Tesla posted in the first quarter.

Considering the fact that Straubel had been at the company even before Musk had joined Tesla, it came as a shock to many.

Tesla delivered around 158,200 of its cars to customers in the first six months of 2019.

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"Due to a significant overlap of components between Model 3 and Model Y, we are able to leverage existing manufacturing designs in the development of the Model Y production facilities", Tesla said. "This is not some lack of confidence in the team or company or anything like that".

Tesla said it generated $614 million of free cash flow (operating cash flow less capital expenditures) in Q2.

The outlook given with second quarter numbers after markets closed on Wednesday said the firm would still aim to be profitable in the third and fourth quarter but put the emphasis on volume growth, increasing production capacity and generating cash.

Records sales still left the company with 10 percent less revenue than its previous record which was set past year according to the Wall Street Journal. "Given that Tesla hit its stride in the back half of past year, it's essential that the company finds some way to keep this sales momentum going if it wants to prove to investors it's on the right track". Electric cars were looking like a long shot for a startup in 2003; perhaps electric airplanes may take off in the next decade, with Straubel the pilot.

Investing.com analyst Clement Thibault told Reuters that Tesla's results "will inevitably lead to more questions about its ability to stabilize and turn a profit".

It is "unclear how much money, if any" Tesla makes on the cheaper versions of the Model 3, and the entire line makes up about 80 per cent of the deliveries, the paper wrote. Apple has poached a number of key Tesla leaders over the last 12 months as it continues its own shadowy work on future auto technologies.

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