On Wednesday, Tesla Motors Inc. (NASDAQ:TSLA) reported its worst-than-anticipated second quarter earnings of fiscal 2016, along with satisfactory updates with regards to its vehicle production and Model 3. Following the earnings release, stock plummeted more than 0.5% during after-market trade.This reveals that investors are still bullish with Tesla’s moves.
In the earnings report, the automaker reported a quarterly loss of $293.2 million, or loss per share of $2.13, from $184.2 million, or $1.45 per share, a year earlier. The reported loss is market as Tesla’s 13th consecutive quarterly loss. Excluding items, the company lost $1.06 per share, as the company continued to spend higher at its vehicle and battery factories. However, the reported earnings per share (EPS) was much wider than analysts’ anticipation of 52 cents.
The company reported revenue of $1.27 billion, a significant increase of 33% from a year ago figure of $1.2 billion. The reported revenue was lower than the analysts’ expectations of $1.6 billion. The automaker’s operating expenses climbed 34% to $512.8 million.
In the earnings call, Tesla CEO Elon Musk said that early problems in building of its Model X were mostly behind the automaker and that “I feel we’re in a good place at this point.”
The US electric car maker delivered lesser vehicles than anticipated during the last several months. According to the automaker, some reasons behind the shortage were supplier parts shortages and "hubris in adding far too much new technology" to the SUV.
Mr. Musk said: “Basically we were in production hell for the first six months of this year, now the production line is humming. Things are really quite stable with the S and X.”
The company revealed that it is expecting that its gross margins will improve by 2-3 percentage points in the latter half of this year, although it expects its operating expenses to increase for the full year by 30%.
The company revealed that it has delivered 14,402 new vehicles during the quarter. These vehicles consists of 4, 638 Model X and 9,764 Model S, which was slightly higher than what the automaker had announced last month production update.
With the help of improvements in vehicle production efficiency, the company revealed that it anticipates manufacturing 2,200 vehicles in a week by the end of 3Q and nearly 2,400 by the end of this fiscal year. Furthermore, its new vehicle orders surged 67% as compared to same quarter a year ago.
The US electric car maker is also witnessing an increase in demand from the customers who like to lease their vehicles. It also anticipates direct leasing to surge from 8% of deliveries in the 2Q to nearly 15% of the deliveries in the third quarter. Though this trend does not seem surprising due to high cost of Model X and Model S, the automaker will have to sign new agreements with lenders to fund the program.
In its letter to the shareholders, though the Silicon Valley automaker revealed that it has reached its funding limit with its banking partner for the leasing program, despite the company predicts to add new partners so that it can continue to sign new lease agreement.
According to the CEO, Tesla’s Model 3, which is expected to arrive in the market late next year, “is overwhelmingly our focus.” The company expects that it will be profitable in the next two quarters, except for the capital spending required for engineering and ramping up the production of its mass-market Model 3, which is scheduled to have a base price of nearly $35,000.
With the earnings, the automaker reiterated that the company has produced record 18,345 vehicles in 2Q, and that it has ended this second quarter building around 2,000 vehicles per week. The Silicon Valley automaker also said that it is still on track to manufacture and deliver its projected 50,000 vehicles during the latter half of the year.
The automaker said: “Vehicle production efficiency is improving rapidly and we are now increasing our weekly production rate even further.” It added that its production should touch 2,400 vehicles per week in the fourth quarter.
The automaker reported operating cash flow of $150 million and spent $295 million on capital needs. As a result, the company had free-cash outflow of $145 million, which is good for the best quarterly performance in over two years.
The company adjusted refundable customer deposits for the Model 3 were also included in operating cash flow. This is likely to mean a big reveal later. However, the electric car maker did not discuss any updates regarding $1,000 deposits of its Model 3. It has now been more than two months since the company gave any reservations for its Model 3.
However, it is predicted that the automaker’s capital expenditures are likely to grow significantly in the coming quarters. Tesla announced in May that it anticipates to spend nearly $2.25 billion in 2016 in order to help get its affordable Model 3 all set for mass production. So far this year, the company has spent slightly above $500 million on capital needs.
Recently, Tesla has come under government scrutiny by Federal regulatory as Model S driver died while operating his vehicle on autopilot mode. The company is expected to release some update regarding its autopilot technology. According to Mr. Musk, he is mystified as to why the regulator has launched the investigation.
“We’re not totally clear on why they opened an investigation because they actually had all the information” weeks earlier from the company, he said. “There wasn’t really anything more to learn.” CEO believes that eventually the self-driving vehicles will become a reality.
He said: “Full autonomy is going to come a helluva lot faster than anyone thinks it will, I think what we’ve got under development is going to blow people’s minds.”
The CEO said that with its giant gigafactory, he foresees "exponential growth" in Tesla's storage battery business.