Tesla says profits are coming as it hits a bittersweet milestone
Electric car maker Tesla said it likely will deliver a recurring, sustainable profit for the first time starting in the next quarter, according to its latest earnings report released Wednesday afternoon.
At the same time the company, led by billionaire entrepreneur Elon Musk, revealed that it has delivered its 200,000th vehicle in the U.S. in July. That's a bittersweet milestone that means that Tesla cars no longer will be eligible for a $7,500 federal tax credit for consumers starting in 2019, which eventually could dent sales.
Tesla's potential profitability and delivery landmark are signs of Tesla's maturity as it's struggled to become a mainstream automaker over its 15-year lifetime. The updates are also a broader sign that the electric vehicle market is growing in general as companies and consumers are increasingly exploring electric vehicle options.
If Tesla is able to become consistently profitable next quarter, it would be a huge deal for the automaker. The company was last profitable in the third quarter of 2016, but hasn't been able to recreate that quarter's unique situation.
Instead, Musk has been predicting (and working on) profitability for Tesla for a while, attempting to curb costs while also plotting major growth and investing in capital expenditures.
In a shareholder letter published Wednesday, Tesla says if it can produce 7,000 vehicles per week consistently, or 350,000 vehicles per year, it will be able to become sustainably profitable. That could be a hard number to reach on a consistent basis; in the most recent quarter, its losses grew substantially.
Tesla said in its latest quarter that it lost $742.71 million, almost double its loss of $401.43 million in the same period a year ago. The more recent figure was also a wider-than-expected loss for analysts.
So far, Tesla has struggled to expand production of its Model 3 electric car to 5,000 cars per week. To reach that goal, Tesla built an entirely separate production line from scratch in a tent outside of its Fremont, California, factory. That unusual, and expensive, move — led by Tesla exec Jerome Guillen — blew the minds of industry watchers, competitors and analysts.
On the new production line, Tesla said it hit that 5,000-car production goal "multiple times." But Tesla still hasn't been able to consistently make 5,000 cars per week on its standard production line inside the Fremont factory.
However, its shareholder letter stated Tesla will grow production of its vehicles on its current lines instead of building completely new lines, mostly to save cash. Tesla says it will continue to grow its Model 3 production rate to 6,000 cars per week by late August.
At some point, Tesla plans to increase that amount to 10,000 Model 3s per week, and expects to hit that rate by next year. However, Musk previously was aiming to reach that 10,000 cars-per-year rate within 2018.
Growing Model 3 production has been a herculean effort by Tesla and Musk, partly because the company relied on too much automation and robotics in certain areas of its assembly line. Musk has been sleeping at the factory and taking over leading key parts of production in an attempt to accelerate production. On the earnings call, Musk said the team had "many sleepless nights" working on the problem.
All eyes will be on Tesla's next quarter to see if the company can meet this ambitious goal of sustained profitability.