Tesla reports $717.5 million Q2 loss; stock surges

Tesla reported a loss of $717.5 million for the second quarter, nearly double from a loss of $336.4 million a year earlier. Total revenue rose to $4 billion from $2.79 billion.

Tesla also said on Wednesday it expects to increase Model 3 production to 6,000 per week by late August, buoying expectations that the Elon Musk-led electric vehicle maker will meet its goal of profitability and positive cash flow in the next two quarters.

Tesla shares surged 16.2 percent to $349.54 at close of trading Thursday. Before Wednesday, the stock had slumped 19 percent since a 2018 high of $370.73 in June. 

The automaker said it expects to build a total of up to 55,000 Model 3s in the third quarter, which works out to an average weekly rate of 4,230 Model 3s. It said it aims to build them at a roughly 15 percent gross margin in the third quarter, rising to 20 percent in the fourth.

The company said it produced 53,339 vehicles in the second quarter and delivered 18,449 Model 3s.

“We aim to increase production to 10,000 Model 3s per week as fast as we can,” the company said.

Musk is under intense pressure to prove he can deliver consistent production numbers for the new sedan, which has faced a host of manufacturing challenges since last year. The company has consistently denied it will need to raise cash but several Wall Street analysts expect a move by the end of the year.

“It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable,” Musk and CFO Deepak Ahuja wrote in the report. “In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive.” 

Free cash flow, a key metric of financial health, narrowed to negative $739.5 million in the second quarter from negative $1 billion in the first quarter, excluding costs of systems for its solar business.

Tesla ended June with about $2.2 billion in cash on its balance sheet -- the least it’s carried since the first quarter of 2016. But the progress the company made slowing how much it was burning through won plaudits even from skeptics.

“I was impressed with their negative free cash flow,” said David Kudla, CEO of Mainstay Capital Management, which is betting against Tesla. “I’m more concerned about quality issues and service issues.”

The company last quarter cut its spending forecasts and Tesla has begun to lay off 9 percent of its workforce.

'More muted tone' 

"We like the more muted tone of the company's outlook, with the absence of unnecessary new stretch goals," said CFRA analyst Efraim Levy. "Perhaps it reflects a more cautious Elon Musk." 

Tesla said demand for the Model 3 remained strong. It delivered its 200,000th electric car -- including its more expensive Model S and X vehicles -- in July, a threshold which means a $7,500 federal subsidy will remain in place to the end of the year.   

Tesla is currently producing more expensive versions of its Model 3 that start at about $49,000.

It recently opened up reservations for the vehicle, allowing new buyers of the pricier models to jump ahead of those who had ordered base models of the vehicle two years ago. That angered some deposit-holders, and analysts questioned whether more would drop out because of delays making the cheaper $35,000 version of the sedan. Tesla said in July there were about 420,000 reservations for the Model 3, and did not update that number on Wednesday.

It did give new details about its plan to build a factory in Shanghai producing both vehicles and batteries. It said Tesla's initial investment would not start "in any significant way" until 2019, with much expected to be funded via local debt.

Musk's apology

Meanwhile, Musk began the question-and-answer portion of the carmaker’s second-quarter earnings call by atoning for what he called his “bad manners” three months earlier.

"I would like to apologize for being impolite on the prior call. Honestly, I think there is really no excuse for bad manners. I was kind of violating my own rule in that regard," he said.

Musk then took the first two questions from two analysts he was harshest with last quarter -- Sanford C. Bernstein’s Toni Sacconaghi and RBC Capital Markets’ Joseph Spak -- and offered personal apologies.

In the first-quarter call in May, Musk cut off Sacconaghi for what he called “boring, bonehead” questions and said Spak’s questions were “so dry.” On Wednesday’s call, Musk apologized to Sacconaghi for being “impolite” before and blamed insufficient sleep.

"Musk displayed a noticeably more muted tone, opening the Q&A with an apology for his behavior last quarter, and answering questions with few fireworks," Sacconaghi wrote later.

It was a major mea culpa to Wall Street by a billionaire who in recent weeks called a British cave diver in the Thai rescue mission a pedophile and portrayed a former battery factory employee as a saboteur. Musk was urged last month by major shareholder Baillie Gifford & Co. and bullish venturecapital firm Loup Ventures to focus on execution.

Reuters and Bloomberg contributed to this report.