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NY Times, Feb. 8, 2018
Tesla Model 3, Elon Musk’s Grail, Remains a Costly Pursuit
By NEAL E. BOUDETTE
On Tuesday, Elon Musk had a Tesla Roadster launched toward an orbit
around the sun. A day later, he and his car company came back to earth.
The electric-car maker said Wednesday that it lost more than
three-quarters of a billion dollars in the fourth quarter as it
scrambled to root out glitches from its manufacturing operations and
ramp up production of its highly anticipated Model 3 sedan.
In a conference call with analysts, Mr. Musk, the chief executive,
acknowledged that Tesla still faced challenges in putting the Model 3
into mass production. “We were in a deeper level of hell than we
expected, still a few levels deeper than we would like to be,” he said.
The company reported a quarterly net loss of $771 million, more than
tripling the loss it reported for the same period a year earlier.
Revenue increased 44 percent to $3.3 billion, on rising sales of its
Model S luxury sedan and Model X, a sport-utility vehicle.
Analysts fret about the hiccups Tesla has encountered and how much money
it must spend while trying to move into high-volume production.
“Cash burn does matter, as it is a finite resource, and ramp delays on
the Model 3 only exacerbate the cash burn,” Brian Johnson, a financial
analyst at Barclays, wrote in a note to investors.
Putting the Model 3 into mass production is a critical task for Tesla.
The company has taken $1,000 deposits from about 400,000 customers
interested in buying the car. If it can begin producing the car rapidly,
its sales and revenue will soar and it could vault into profitability.
Just two years ago, Mr. Musk hoped to make 500,000 by 2018, and the
ambitious forecast helped push Tesla’s market value above that of
General Motors and Ford Motor for a period in 2017.
In July, as Model 3 production was about to begin, Mr. Musk ratcheted
back expectations, resetting his target to 20,000 vehicles a month by
December. But difficulties producing battery packs at Tesla’s Nevada
plant, called the Gigafactory, and other glitches in the car’s assembly
process combined to slow output to a crawl.
Tesla built just 260 by the end of September. In January, it said it had
made only 2,425 in the final quarter of 2017, and set a goal of
increasing output to 5,000 a month by the end of the first quarter.
Mr. Musk said Tesla had developed a new automated production line that
would be installed in the Gigafactory in March, easing hitches in
supplying batteries to its assembly plant in Fremont, Calif., which was
once operated jointly by Toyota Motor and General Motors.
Our columnist Andrew Ross Sorkin and his Times colleagues help you make
sense of major business and policy headlines — and the power-brokers who
shape them.
Tesla now hopes to be able to produce 2,500 Model 3s a week by the end
of March and 5,000 a week by the end of June. Mr. Musk said it aimed
eventually to produce 500,000 Model 3s a year.
“They haven’t delivered what they’ve promised, but does it matter?” said
Michelle Krebs, an analyst at Autotrader.com. “It doesn’t seem to matter
to their investors and the customers who’ve put down deposits. When
investors don’t put any more money into the company, then you will know
it’s a problem.”
On a positive note, Tesla reported it used up only $277 million in cash
in the fourth quarter. That was down from $1.4 billion in the third
quarter. On a full-year basis, however, the company used nearly $3.5
billion in cash, more than twice the amount from 2016.
The company’s loss in the quarter amounted to $3.04 per share on an
adjusted basis, slightly less than analysts had forecast, and $4.01
unadjusted.
Tesla has lost money in eight of the last nine quarters. Mr. Musk said
he was “cautiously optimistic” that it would begin to generate net
income in 2018, as Model 3 production and deliveries rose.
The company’s shares were little changed in extended trading after the
earnings report. They had risen 3.3 percent during the regular session.
Even if Model 3 output rises, Tesla will have to spend heavily on two
future vehicles — a battery-powered semi truck and another car, the Model Y.
While working on the Model 3, Mr. Musk has continued to seek new
barriers to break in other areas.
On Tuesday, his other company, SpaceX, successfully launched a heavy
rocket into space. It was the first time a rocket that powerful had been
launched by a private company. The Falcon Heavy is carrying a cherry-red
Tesla Roadster. The rocket and the car are intended to go into an orbit
around the sun, where they
