Tesla’s £500m loss reversible with Model 3 production boost, Musk predicts

Tesla has reported a loss of $675.4m (£487m) in the last quarter of 2017 - its largest ever - but founder Elon Musk is confident that ramping production capacity for the company’s Model 3 sedan electric cars will reverse this trend in 2018.

Tesla, which was founded in 2003 by Musk, has never made a profit but investor enthusiasm has kept the company afloat while it figures out how to produce relatively low-cost electric cars with an acceptable driving range.

“At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis. With the planned ramp of both Model 3 and our energy storage products, our rate of revenue growth this year is poised to significantly exceed last year’s growth rate”, the company said in a statement.

Tesla has produced a number of vehicles in the past such as the Model S and the Model X, but their high cost and luxury stylings have ensured that only relatively small numbers have been sold.

The Model 3 is due to be available for less than half the cost of any other Tesla vehicle currently in production and is also positioned more towards the mass market.

However, production capacity has been limited and potential customers have been forced onto a long waiting list, which reached nearly 500,000 people at its peak.

The first Model 3 cars started rolling out of the factories in mid-2017, but by the end of the year customer deliveries totalled just 1,764 units.

Tesla had initially set itself a target of making 5,000 vehicles per week by March 2018, but in January that was carried over to the end of June. The company’s quarterly earnings provided some relief to investors as it maintained this target.

“It is important to note that while these are the levels we are focused on hitting and we have plans in place to achieve them, our prior experience on the Model 3 ramp has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time,” the company said.

“What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.”

The money-losing company’s long-term viability depends on annually selling billions of dollars of Model 3s, which has a starting price of $35,000. Net reservations for the new model were reportedly stable during the fourth quarter.

Musk reiterated a bold goal to produce one million vehicles annually by 2020, with plans to make capital investments related to the upcoming Model Y SUV toward the end of this year. Nearly two years ago, Musk proclaimed that Tesla would produce 500,000 vehicles in 2018, which Model 3 troubles has made nearly impossible.

Analyst Jamie Albertine at Consumer Edge Research said there was a trade-off between accelerating growth and vehicle quality and it was better not to rush Model 3 production and risk a recall. Tesla’s reiteration of its production target for the quarter was good news, he said.

Tesla chief financial officer Deepak Ahuja said that more than 50 percent of Tesla’s spending was on the Model 3, underscoring that project’s importance and its high cost.

Musk’s other company SpaceX successfully launched its massive Falcon Heavy rocket earlier this week with its side boosters landing back to Earth intact after depositing its payload into space. 

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