Tesla posts wider Q4 loss, sees 'sustained' improvement in '18

Tesla Inc. CEO Elon Musk's rocket venture is making major strides in space, but his car company is struggling to find profits on the ground.

A day after SpaceX successfully launched the most powerful rocket in the world, Tesla posted a $675.4 million net loss for the fourth quarter of 2017, compared with a net loss of $121.3 million a year ago. The company reported total revenue of $3.29 billion for the quarter, up from $2.28 billion in the fourth quarter of 2016.

Tesla has posted profits in just two quarters since it became a public company. Automotive revenue in the fourth quarter totaled $2.7 billion, up from $1.99 billion during the last three months of 2016.

The company said it is losing money on the Model 3, given the slow production ramp-up, and will continue losing money on the Model 3 in the first quarter. "Since Model 3 production was in the early stages of the ramp, allocation of full operating costs and depreciation made its gross margin negative," the company said in a letter to shareholders. Non-GAAP automotive profit margins were 13.8 percent in the fourth quarter of 2017, down from 22.2 percent in the fourth quarter of 2016.

"If we can send a roadster to the asteroid belt we can probably resolve Model 3 production," CEO Elon Musk said on a call with analysts. "It's just a matter of time."

Musk also said Tesla's head of sales and service Jon McNeill had left the company and the automaker was not looking for a replacement. Bloomberg reported during the call that McNeill had joined ride-hailing company Lyft as chief operating officer.

Tesla said it plans to reach consistent profitability this year.

"At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis," the company said. "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 automaker is increasing production of its Model 3 sedan, its first vehicle intended for mass production. In January, Tesla pushed back its target to produce 5,000 vehicles a week to the second quarter of this year, but said it had reached a rate of 1,000 cars a week at the end of 2017. Tesla said Wednesday it plans to hit a rate of 2,500 vehicles a week at some point in the first quarter.

The automaker took $854 million in customer deposits for the Model 3, semitruck and second-generation Roadster, compared with $664 million in deposits in the year-ago time frame.

Tesla also opened up a new source of funding in January, when it began selling lease-backed securities. The Wall Street Journal reported on Feb. 1 that the automaker had sold $546 million in such bonds.

The Model 3 ramp-up is likely to remain unsteady as Tesla deals with "production bottlenecks." The automaker did not mention when it plans to hit 10,000 vehicles a week, a metric that it has said would be reached by the end of 2018.

“We were in a deeper level of hell than we expected, still a few levels deeper than we would like to be,” Musk said of the Model 3 production woes on Wednesday's call.

While discussing earnings for the third quarter of 2017, Musk identified supplier problems at the battery gigafactory in Nevada as the cause for production holdups. In its shareholder letter, Tesla said it was addressing bottlenecks and adding capacity to its battery module production line.

The automaker added that it had acquired automation startups to increase efficiency and add talent to the production line, and will begin working toward a 10,000-vehicles-a week rate once it hits the 5,000-vehicle milestone.

Analysts expect the ramp-up to continue to be spotty as Tesla speeds the manufacturing line.

"While one would assume the ramp to steadily increase, in reality the ramp is likely to be lumpy, with weeks of downtime/low production as they address bottlenecks preventing them from taking production higher," wrote Barclays analyst Brian Johnson in a note to investors.

Some industry watchers are losing patience with Tesla's consistent inability to hit its targets.

"At some point the company must produce vehicles, profitably, at a high volume," said Karl Brauer, executive publisher at Kelley Blue Book. "The timeline to do that remains murky.”

Tesla still has not conducted the coast-to-coast hands-free drive it had planned for the end of 2017, but said Wednesday that trip is "upcoming," and it would roll out new features for its Autopilot semiautonomous driving software this year.

Musk estimated on the call that the drive could happen in the next three to six months, and such self-driving capability would be available to customers in the same timeframe. However, the executive has made similar promises before. In a tweet dated Jan. 23, 2017, Musk said "Full Self-Driving Capability" features would hit customer vehicles within three to six months.

The system will continue to rely solely on camera, radar and ultrasonic sensors, Musk said, calling the lidar sensors most other companies have been using to develop autonomous vehicles "a crutch."

By the end of this year, Musk said he would release details on the design and manufacturing plans for the Model Y compact SUV. He said he eventually expects to produce one million Model Y vehicles a year.

The automaker also said it would be the first company to use its own electric semitruck, transporting Model 3 components between the gigafactory and the Fremont, Calif., plant. The letter did not specify when this would begin, or where the truck would be produced.