Tesla Is Aiming To Become Profitable Starting Next Quarter & Future Quarters
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On Wednesday, August 1, 2018, Tesla CEO Elon Musk pledged future profitability of the company and apologized for his erratic behavior during the last quarter’s earning call and on social media. Musk was optimistic during the second quarter conference call on Wednesday due to Tesla’s second quarterly reports demonstrated a key milestone of producing 5,000 Model 3 sedans per week. In after-hours trading, Tesla shares soared as much as 11%. Tesla backed its prior forecast of profitability during third and fourth quarters of this year.
“From an operating plant standpoint, from onwards I really want to emphasize our goal is to be profitable and cash flow positive for every quarter going forward.” Musk said. He also added that regardless what other future events such as recession that may occur, the goal of the company is to be achieving positive GAAP income and cash flow “every quarter from here and on out.”
Some of the strategies in reaching its goal: cost cutting, increasing production rate, and improving margins. Tesla expected its cash reserves to grow during the second half of 2018, and much lower capital expenditures ($3.4 billion in 2017 to $2.5 billion in 2018). According to reports from Tesla, it produced 53,339 vehicles in the second quarter and delivered 22,319 Model S and Model X and 18,449 Model 4 vehicles (totalling 40,768 deliveries). In July, Tesla was able to reach its target of producing 5,000 Model 3 vehicles per week multiple times. To remedy its behind-schedule status, Tesla had resorted to setting up assembly lines in temporary tent structures. Now, its aim had changed to 6,000 vehicles per week, which Tesla hoped to have reached by the end of August. By the end of 2018, the goal of producing 10,000 vehicles per week would hopefully be arrived. Musk noted that the company would most likely be able to produce 700,000 to 800,000 vehicles per year by 2020. The total automotive gross margins of Tesla rose slightly, fueled in part by the fact that Model 3 gross margins turned slightly positive in the second quarter, over the previous quarter. Tesla expected Model 3 margins to be 15% in the third quarter, lower than the 25% target it had set for the car. Tesla expected to produce 50,000-55,000 Model 3’s next quarter, and deliveries would exceed that number. Musk said on Wednesday that he wanted to focus on reducing Tesla’s debt, and had no plans to raise capital.
“My apologies for not being polite on the prior call,” Musk blamed his behavior in part on his lack of sleep and overwork during the first quarter call.
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