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Sales up, revenue up, but still losing money: A Tesla story

David Butow | Getty Photos

Tesla CEO Elon Musk has called the company “a drama magnet” in comparison with SpaceX, The Boring Firm, or any of Musk’s different endeavors. Because the launch of the Model 3, the $35,00Zero car in Tesla’s battery-electric lineup, that has held true. Now in Q3, the corporate’s monetary assertion displays extra of that drama, good and unhealthy. Wednesday night time, Tesla posted one other loss, higher than the one earlier than it, however with revenues and gross sales hitting file highs on the similar time.

Based on numbers released today (PDF), Tesla posted a $671 million loss on complete revenues of almost $three billion within the third quarter of 2017.

Examine that to 2017’s second quarter, the place Tesla posted a lack of $401 million after complete revenues of $2.7 billion.

In a letter to shareholders, Tesla famous that it obtained “file internet orders” for the Mannequin S and X in Q3—the 2 automotive merchandise that the corporate appears to have the ability to push out with consistency. This earnings name was particularly anticipated upfront of the Q3 production numbers that Tesla posted in early October. Whereas outcomes for the Mannequin S and Mannequin X have been good—25,930 older mannequin luxurious automobiles have been delivered within the quarter, beating the corporate’s estimates for the quarter—new Mannequin three deliveries have been startlingly unhealthy. Though the corporate had promised to ship 1,500 Mannequin 3s in Q3 2017, it solely delivered 266 complete. Tesla CEO Elon Musk blamed manufacturing bottlenecks, and The Wall Street Journal reported that “major portions” of the Mannequin 3s that had to date been delivered have been constructed by hand.

The view from “manufacturing hell”

In opening remarks on an earnings name right this moment, Musk stated he was “doing this name from the Gigafactory as a result of that’s the place the manufacturing constraint is.”

“I all the time transfer…myself to the place the place the most important downside is… I consider one ought to all the time lead from the entrance strains.”

Musk’s feedback confirmed stories from Reuters earlier this week that the Mannequin three manufacturing difficulty was on account of battery meeting issues. The Reuters report was based mostly on feedback from Panasonic CEO Kazuhiro Tsuga, who stated that bottleneck points could also be nearing an finish. (Panasonic, you’ll recall, has partnered with Tesla to run the Sparks, Nevada, Gigafactory the place many of the Mannequin three battery packs are speculated to be constructed, in addition to the Buffalo Photo voltaic Metropolis panel manufacturing unit.)

Tesla’s shareholder letter revealed on Wednesday afternoon gave particulars on the issue:

So far, our major manufacturing constraint has been within the battery module meeting line at Gigafactory 1, the place cells are packaged into modules. 4 modules are packaged into an aluminum case to kind a Mannequin three battery pack. The mixed complexity of module design and its automated manufacturing course of has taken this line longer to ramp than anticipated… Now we have redirected our greatest engineering expertise to fine-tune the automated processes and associated robotic programming, and we’re assured that throughput will improve considerably in upcoming weeks and in the end be able to manufacturing charges considerably higher than the unique specification.

Musk additionally hinted at points with a sub-contractor on the battery meeting line inflicting issues. He claimed a “sub-contractor actually dropped the ball, and we didn’t notice the ball was dropped till fairly not too long ago… We needed to rewrite the software program [for a battery assembly area] from scratch.”

Tesla declined to foretell when all of the bottlenecks can be smoothed out, however the shareholder letter famous that by “late Q1 2018” it hoped to be producing 5,00Zero Mannequin three automobiles per week. Musk did appear to dismiss the Mannequin three’s stumble-start within the name, as nicely. “The Mannequin three is a ten-year program. A number of months out of ten years is… immaterial,” the CEO stated.

As for Musk’s Mannequin three “manufacturing hell,” a caller requested him to price the place Tesla is on a scale of 1 to 10.

“We have been in stage 9, now we’re at stage eight, and I feel we’re near exiting stage eight,” Musk stated. “I had hoped we’d be at stage 7 by now.”

Past Mannequin three

In mid-October, The Wall Street Journal reported that Tesla had reached a deal to open a manufacturing unit in Shanghai’s Free Commerce Zone. The corporate would nonetheless be required to pay 25-percent import tariffs on automobiles offered in China, however a Shanghai manufacturing unit may curry favor with the Chinese language authorities and would open up China’s provide chain to the corporate.

Musk appeared to verify this information on the decision however famous that any capital spending on a manufacturing unit would not come till 2019. “Don’t set your watch by this, but it surely’s form of a tough goal of manufacturing within the subsequent three years,” Musk stated of a manufacturing unit in China. “And it could be serving the China market,” he clarified, noting that the manufacturing unit would in all probability solely make Mannequin S and as-yet-unannounced Mannequin Y automobiles. “It’s actually the one method to make the automobiles reasonably priced in China… but it surely’s three years out,” Musk stated.

Musk additionally criticized latest information articles reporting that Tesla had fired hundreds of workers, which nameless sources prompt have been union-leaning. Experiences stated that between 400 and 700 workers within the 33,00Zero-person firm have been laid off after efficiency critiques. “A journalist who wrote tales like this must be ashamed of themselves for missing journalistic integrity,” Musk stated, noting that “solely 2 % of individuals didn’t make the grade.” (Editor’s be aware: a extremely seen startup firing lots of of employees in the course of broadly reported manufacturing points definitely has information worth.)

Musk additionally briefly touched on the place Tesla is with respect to autopilot. In September, reports surfaced that Tesla would construct its personal customized AI chips, snubbing Nvidia for a partnership with AMD. Right this moment, Musk stated on the corporate’s earnings name that Tesla would be capable to obtain full autonomy, however regulatory calls for may make a improve needed. “It’s not simply full autonomy, however full autonomy with what diploma of certainty,” Musk stated. “Regulators could require some vital margin above [a level of safety]… however I’m assured that we are able to get to human-level with our present .”

The CEO stated that there can be an announcement on AI “quickly,” including that if a chip improve is important for a buyer who had already bought Autopilot, Tesla would substitute that chip.

Regardless of drama from Tesla’s automotive sector, Tesla Vitality appears to be paying off for the corporate. Battery pack gross sales (together with stationary storage Powerwalls and grid-tied Powerpacks) introduced in $317 million in income, however the sector solely value the corporate $237 million. “In Q3, we deployed 110 MWh of power storage techniques, rising 12 % from the prior quarter and growing 138 % year-over-year, pushed primarily by elevated Powerwall deliveries,” the corporate wrote in its shareholder letter. “So far, we’ve got additionally put in greater than 80 % of the Powerpacks for the South Australia project; nonetheless, income is not going to be acknowledged till full deployment of the venture.”

Notably absent from the decision was any point out of the Tesla semi, which was speculated to be revealed in September, then in October, and now could be tentatively scheduled for November.

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