SAN FRANCISCO/BENGALURU (Reuters) – Tesla Inc (TSLA.O) on Wednesday missed financial targets in its second quarter despite record deliveries of its electric vehicles, adding that the carmaker will break even, rather than post a profit, this quarter.
FILE PHOTO: A Tesla logo on a Model S is photographed inside of a Tesla dealership in New York, U.S., April 29, 2016. REUTERS/Lucas Jackson/File Photo
Automotive gross margins, a focus for investors, dropped in the quarter from 20% to 19%, even as revenue from robust deliveries fell short of analysts’ expectations.
Shares fell 10% after hours.
Under pressure to meet his promise to post profit in the second half of the year, Chief Executive Elon Musk is trying to contain costs while still spending on major initiatives from a Shanghai factory and assembly-line to upcoming models such as the Model Y SUV and a Semi commercial truck.
Musk said that the company had grown to the point of “being self-funding,” going forward, then said that he expected it to break even this quarter, then post profit in the fourth.
That was a step back from a prior prediction, underscoring Tesla’s challenges in meeting profit goals.
After initially promising Tesla would be profitable starting from the third quarter of 2018, the company warned in February it would not be profitable in the first quarter, due to a major drop in deliveries. It gave a similar warning for the second quarter in April, saying it expected to return to profitability in the third quarter.
In a press release on Wednesday, Tesla was less definitive: “We continue to aim for positive GAAP net income in Q3 and the following quarters, although continuous volume growth, capacity expansion and cash generation will remain the main focus.”
Investing.com analyst Clement Thibault told Reuters that Tesla’s results “will inevitably lead to more questions about its ability to stabilize and turn a profit.”
Roth Capital’s Craig Irwin called the likelihood of profit in the third quarter “a coin toss.”
Even while growing, Tesla has laid off workers and pledged to close some stores to lower costs. Facing increased competition from a slew of European rivals with electric offerings, it has also tinkered with its pricing.
Most recently, it eliminated the least expensive versions of its Model S sedan and Model X SUV, while cutting the starting price of its Model 3 to $38,990.
Tesla said on Wednesday it had trimmed its capital expenditure target for 2019 to $1.5 billion to $2.0 billion, from $2.0 billion to $2.5 billion.
Tesla’s strong second-quarter deliveries assuaged doubts about demand for the Model 3, but concerns linger, especially since a federal tax credit was cut by half on July 1 and expires at the end of the year.
Many analysts note that Tesla will be challenged not only to meet its deliveries target of 360,000 to 400,000 vehicles this year, but to keep profit margins from further eroding.
The company on Wednesday repeated a target of producing 10,000 vehicles per week by the end of 2019.
A 58.7% revenue rise to $6.35 billion in the quarter fell short of the $6.41 billion estimated by analysts, according to IBES data from Refinitiv, even as a non-GAAP loss of $1.12 per share was deeper than the loss of 36 cents they expected.
Shares of Tesla are down 22% since the beginning of the year, but they have been rebounding since early June, after hitting their lowest close since early 2016 at $178.97.
Reporting by Vibhuti Sharma in Bengaluru and Alexandria Sage in San Francisco; Editing by Anil D’Silva and Lisa Shumaker