Tesla sticks by target of 5000 Model 3s by Q2, Musk warns spending may rise

Tesla Inc said on Wednesday it was sticking with Chief Executive Elon Musk's revised production targets for its Model 3 electric sedan, but posted its worst-ever quarterly loss, and warned that spending would increase slightly this year.

Shares of the Palo Alto, California-based company were barely changed in extended trading.

Money-losing Tesla's long-term viability depends on annually selling billions of dollars of Model 3s, the new sedan that starts at $35,000, about half the price of its flagship Model S. Tesla said that net reservations for the new model were stable during the fourth quarter.

Production delays have curtailed deliveries of the vehicle to customers - only 1,550 deliveries in the fourth quarter, far below the 4,100 vehicles expected by analysts - meaning revenue from the highly anticipated vehicle has yet to hit Tesla's bottom line.

 

Tesla's biggest-ever quarterly loss, however, was not as wide as analysts were expecting, and revenue also just topped targets.

And Musk said the company would turn a profit during 2018.

"At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis, operating 5,000 a week of Model 3 production," he said. "I'm cautiously optimistic that we will actually be GAAP profitable with no asterisk."

He also maintained his goal to produce 1 million vehicles annually by 2020, with plans to make capital investments related to the Model Y SUV toward the end of this year.

On Wednesday, Tesla stuck by its production target made in January - which had been pushed back twice previously - that it expected to build 2,500 Model 3s per week by the end of March, and 5,000 by the end of the second quarter. Yet it cited the difficulty of accurate production forecasts.

Tesla spent $787 million in capital expenditures in the fourth quarter, below its projections, but said capital spending in 2018 would be "slightly more" than in 2017 due to expanded production at its Fremont factory and Nevada Gigafactory. Tesla burned through $3.4 billion last year.

Other new projects requiring high upfront investment include the recently unveiled Tesla Semi to the upcoming Model Y SUV and a factory in China. Tesla said in November that Tesla was "well capitalized" for the delayed Model 3 production schedule. 

Tesla ended the fourth quarter with $3.37 billion in cash, just below the $3.5 billion in the previous quarter, which had been boosted by a $1.8 billion debt sale. Earlier this month, the company raised $546 million in securitised notes backed by Model S and X lease payments, the first time Tesla has securitised its leases. 

"With its cash drain growing and production and gross margin visibility low, we consider Tesla a show-me story," wrote Bernstein analyst Toni Sacconaghi in a note published Wednesday before the release of results.

The niche carmaker has made inroads among luxury car buyers with the advanced technology and innovative design in its Model S sedan and Model X SUV. Nearly two years ago, taking the industry by surprise, Musk proclaimed Tesla would produce 500,000 vehicles in 2018, mostly Model 3s, a six-fold increase over 2016 levels.

Musk's oversized ambitions, if realized, could allow the billionaire to earn as much as $55.8 billion in Tesla stock in the next decade under a new compensation plan that prioritizes a 10-fold boost in the company's market value over profitability. 

He said there was no ongoing search to replace him as Tesla CEO. However, Jon McNeill, president of global sales and service, is leaving the company.

Tesla's soaring stock - fueled by belief in the long-term prospects of the company - has now made the company the second-most valuable U.S. automaker, just behind General Motors Co , which had net revenue of $145.6 billion in 2017.

Tesla's market cap is currently $56.1 billion, up 35 percent from $41.6 billion from a year ago.

Musk scored a clear victory on Tuesday with the successful launch of the world's most powerful rocket, Falcon Heavy, made by his private company SpaceX. But some analysts have questioned whether his myriad of other interests, from space exploration to tunnel boring technology, are a distraction at a critical time within Tesla.

Automotive gross margin, which excludes the sale of zero emission vehicle (ZEV) credits, fell to 13.8 percent from 22.2 percent last year, below the 15.7 percent margins expected by analysts, according to FactSet.

Net loss widened to $675.4 million, or $4.01 per share, for the fourth quarter ended Dec. 31 from $121.3 million, or 78 cents per share, a year earlier. 

Total revenue rose to $3.29 billion from $2.28 billion, just above the $3.28 billion expected by analysts, according to Thomson Reuters.

Excluding items, the company lost $3.04 per share, above the $3.12 per share loss expected by analysts.

Shares of Tesla have fallen 10 percent from a 12-month high of $385 in September, but are up 10 percent from January.