Tesla Loses Less Money as Model 3 Sales Surge – The New York Times

Tesla surprised many analysts and investors earlier this month when it said it delivered a record 95,200 cars in the second quarter, a roughly 50 percent increase from the first three months of the year. The news lifted its sagging stock price as well as the spirits of its customers and many fans.

On Wednesday, the company said that surge in sales also lifted its bottom line. Tesla said it lost $408 million in the second quarter, compared with a loss of $702 million in the first quarter when sales slumped as the company struggled with logistical challenges, including getting its Model 3 sedans to Europe and China.

The second-quarter loss amounted to $2.31 per share. Revenue jumped to $6.3 billion, from $4.5 billion in the first three months of the year.

Both figures came in below Wall Street’s expectations. Analysts had expected a loss of $1.27 per share and revenue of $6.5 billion, according to FactSet. Tesla shares fell about 10 percent in extended trading. Before the earnings report, the stock had closed at $264.88, up 1.8 percent.

Tesla said its chief technical officer, J.B. Straubel, would step down and become a senior adviser to the company. He will be replaced by Drew Baglino, currently Tesla’s vice president of technology.

Mr. Straubel is the latest and most senior executive to leave a company that has lost many top managers over the last few years. He was part a group of employees who joined the company at its founding, and has overseen the engineering and technical design of its vehicles. Two of Tesla’s top manufacturing and technical executives, Peter Hochholdinger and Steve MacManus, also left the company recently.

On a positive note, Tesla said it generated $614 million in free cash flow. Including the $2.4 billion it raised from an offering of stock and convertible bonds in May, the company ended the quarter with $5 billion in cash.

“We believe Tesla is at the point of being self-funding,” the company’s chief executive, Elon Musk in a conference call on Wednesday.

Separately, Ford Motor on Wednesday reported a $148 million profit for the second quarter, down from $1.1 billion a year ago, the latest sign of slowing auto sales around the world.

Typically, a big jump in deliveries means a carmaker is doing well and minting money. But that was not the case for Tesla because it is spending heavily. The company is building a plant in China, which it said should begin producing the Model 3 by the end of the year. It is also developing several vehicles and making improvements to its customer service.

Its record sales in the second quarter came at a cost: Tesla pumped up demand in part by cutting prices. The most recent cut was last week, when it lowered the price of the most affordable version of its Model 3 sedan by $1,000, to $38,990.

It’s unclear how much money, if any, Tesla makes on the lower-priced versions of the Model 3. All told, the sedan made up more than 80 percent of the company’s deliveries in the second quarter.

“The Model 3 hasn’t reached a combination of sales volume and price that produces profits,” said Erik Gordon, a business professor at the University of Michigan who follows Tesla. Investors have to worry about whether it can reach a profitable combination, he added.

“The good news is the cash flow picture,” he said. “The company is not about to run out of cash.”

A big problem for the company is that demand for its more expensive, and more profitable, Model S luxury sedan and Model X sport utility vehicle has fallen sharply this year.

In the second quarter, combined sales of the Model S and X totaled about 17,700. That was about 5,600 more than in the first quarter but 10,000 fewer than it sold in the last three months of 2018.

“It is obvious the appetite for the Model S and X is not that strong,” said Shane Marcum, general manager of the Cross-Sell Reports, which tracks registrations of new cars in 23 states. “The Model 3 is cannibalizing sales of the S and X.”

Industry analysts and car enthusiasts have also been speculating that Tesla might soon redesign the Model S and X, which were first introduced several years ago. But Mr. Musk said on Twitter earlier this month and again on Wednesday that was not the case.

Tesla said that demand for its electric cars would continue to grow in the second half of the year. The company has set a goal of selling 360,000 to 400,000 cars in 2019. Sales in the first six months of the year put it less than halfway to that total, and it will have to sell 100,000 or more cars in each of the final two quarters to hit the target.

The company could find that difficult. On July 1, the federal tax credit available to Tesla’s customers in the United States will fall by half to $1,875. On Jan. 1, the tax credit will go away entirely.

Mr. Musk said the company had to lower the cost of its vehicles to appeal to more customers. The Model 3 sells for an average of $50,000. The average new car costs about $35,000.

For this year at least, Tesla cannot count on any new models to attract customers and drive sales higher. It is working on the Model Y, a sport utility vehicle that shares a lot of parts with the Model 3 but will come with up to three rows of seating, rather than the Model 3’s two rows.

But that car will not go into production until late in 2020. Tesla is also working on a pickup truck and a semi truck, but they are not expected to arrive until after the Model Y.

Mr. Musk said Tesla expected to be “about break even” in the third quarter and profitable in the fourth quarter. The company also lowered its outlook for capital expenditures this year, to a range of $1.5 billion to $2 billion, from an earlier estimate of $2 billion to $2.5 billion. The company said it was becoming more efficient and was putting off some spending.