Musk plans to launch Model Y crossover in early 2020; Tesla losses grow in Q1
Company posts $785 million loss in Q1; revenue rises to $3.41 billion
Tesla Inc. could begin production of its Model Y small crossover in early 2020, CEO Elon Musk said Wednesday.
"Model Y is going to be a manufacturing revolution,” Musk said on an earnings call in which he expressed frustration with certain Wall Street analysts’ “boring" questions.
On Wednesday, Tesla reported first-quarter financials, during which the Palo Alto, Calif.-based automaker hemorrhaged $784.6 million on revenue of $3.41 billion. In comparison, Tesla reported a net loss of $397.2 million a year ago, on revenue of $2.7 billion.
Tesla has posted positive net income in just two quarters since it became a public company in 2010. Automotive revenue in the first quarter totaled $2.73 billion, up from $2.29 billion during the first three months of 2017. The company had a cash balance of $2.7 billion at the end of the first quarter.
Model 3 production hit 2,270 per week in April, below the 5,000 units per week that Musk noted would bring the company to cash-flow positive.
"Our understanding of production is improving exponentially,” Musk said on the call. "We are seeing ways to achieve improved volumes with dramatically less [capital spending] by simplifying production line and engaging [employees] in improving the way parts are made.”
Tesla revealed it had more than 450,000 Model 3 reservations at the end of the first quarter. The company hoped to hit the 5,000 weekly production mark in about two months. Model S and X deliveries in the second quarter are expected to be similar to the first quarter but should "pick up considerably in Q3 to achieve our goal of 100,000 deliveries for the full year," the company said.
Tesla shares fell 5.5 percent to close at $284.45 on Thursday.
Musk dismissed an April 11 Reuters report that claimed Tesla plans to begin production of the Model Y in November 2019. The article, which cited two unnamed sources, indicated the vehicle would begin to be built at its Fremont, Calif., plant.
"The Reuters report is based on nothing,” Musk said. "We will not be starting production of Model Y next year. I would say it’s probably closer to 24 months from now… [early] 2020 is a more likely prospect.”
Musk also clarified Model Y would not be made in Fremont, noting the plant is “jammed to the gills” and “crazy packed.”
While noting the site of Model Y product has not been determined, Musk said a site decision on a second Tesla factory could come “maybe next quarter, but not later than fourth quarter.”
Tesla also expects to announce the location of a new battery Gigafactory, which will be in China.
"In future, all Gigafactories will incorporate vehicle production,” Musk said. Currently, Tesla manufacturers its vehicles in Fremont and lithium ion batteries in Nevada.
Musk, who bucked traditional auto manufacturing practices with a mostly automated Model 3 production line, has had to recalibrate his expectations. Musk acknowledged an overdependence on automation on the Model 3 production line has led to quality issues and slowdowns.
“Yes, excessive automation at Tesla was a mistake,” Musk tweeted last month. “Humans are under-rated.”
More humans, however, are going to escalate costs for a company already buckling under pressure to manage costs.
"There are some things that are very well suited to manual operation and some things that are very well suited to automated operation, and the two should not be confused,” Musk said on the call. “…We did go too far on the automation front and automated some pretty silly things."
As Tesla burns cash, it shoulders $10 billion in debt -- $1.2 billion of which is maturing in the next 12 months. Those headwinds have buffeted the company’s stock and credit ratings.
No pot of gold in sight
“We have moved beyond the limitless horizon line, in terms of patience with Tesla’s financials, to a limited horizon line,” Karl Brauer, senior director at Kelley Blue Book, which is owned by Cox Automotive, said in an interview earlier Wednesday before the earnings report was released. “People are starting to say we need to see a pot of gold at the end of this rainbow and we are not going to wait forever for it.”
Musk waved away a question on whether Tesla needed to raise more equity capital. When pressed by the analyst, who then asked if Musk "wanted to" raise capital, even if he didn’t need to, the CEO curtly responded: "I specifically don’t want to."
Beyond body panel gaps and autonomous technology accused of being "half baked" in a 2017 class-action lawsuit, lurks a more existential threat to Tesla’s long-term survival.
The much deeper pocketed competition is finally catching up. Jaguar, Volvo, Mercedes-Benz, Porsche and Audi have announced premium electric vehicles in the near term.
“The premium-badged multi-hundred mile EV market that Tesla has owned for five to 10 years will not be nearly as exclusive,” Brauer said. “The market is going to shift dramatically in that it’s not going to be that unique to have a 200-to-400-mile-range EV in another 12 months to 24 months.”
While Tesla’s current frothy valuation -- its shares closed Wednesday at $301.15 for a market value of more than $50 billion -- shields Tesla from a takeover, a buyout might ultimately be the way this story ends.
“Tesla would be an attractive way for a Chinese automaker to enter the electric vehicle market,” Brauer said. “China by itself will be the backbone of the EV revolution, and they’ve got a lot of money.”
Tesla could provide the next billion-dollar market opportunity for a tech conglomerate, such as Apple. Tesla not only offers top-tier battery and computer technology, it offers an enviable brand cachet thanks to legions of loyalists.
While Tesla’s future as an independent company is more uncertain than ever, the company has proven with certainty that there is a market for attractive high range EVs, Brauer said.
“Finally, we are seeing a concerted effort from a number of premium brands to produce essentially a Model S, or a Model X competitor,” he said. “Tesla’s existence has sped up the effort to produce practical (200 miles+ range) EVs by ... five to 10 years.”
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