Tesla just reported a $717.5 million loss in the second quarter of 2018.
Losing nearly three-quarters of a billion dollars is tough to wrap your head around. In fact, it’s the largest quarterly loss the company reported in its history, to date. However, that’s not shaking Tesla’s investors. They were expecting worse.
Taking on a significant amount of debt – particularly in light of ramping up production – is nothing new. Tesla is pulling out all the stops to build at least 5,000 Model 3s every week. However, the concern rests not so much with the fact that the company is losing money. Instead, investors are concerned with how fast Tesla is burning through its cash reserves. Despite losing over $700 million in the second quarter, the company ended up with $2.2 billion in cash at the end of June. That’s not as bad as investors were expecting, as the company burned through $430 million of its cash stockpile in the last quarter, according to a CNN Money report.
After the initial $717.5 million loss’ shock subsided, Tesla’s stocks surged as trading opened today. In fact, the company’s shares are up 8 percent, trading at $330 a share – its highest point in weeks. Investors are collectively relieved that Tesla’s quarterly loss wasn’t quite as bad as they were expecting.
Some analysts are skeptical about Tesla’s profitability claims
Again, despite the recent losses, Tesla and its CEO Elon Musk are confident the Model 3 will lead the company to profitability in the second half of 2018. Tesla Model 3 production has increased in recent weeks, but there’s an issue. While Tesla marketed the Model 3 as a mass-market proposition – starting at just $35,000 – those cars haven’t hit the market yet.
Difficult, but necessary Tesla reorg underway. My email to the company has already leaked to media. Here it is unfiltered: pic.twitter.com/4LToWoxScx
— Elon Musk (@elonmusk) June 12, 2018
Instead, Tesla relies upon selling much more expensive versions to customers to achieve profitability. Even if the company starts selling the $35,000 version in droves, can it propel the company to profitability? Some analysts are skeptical, based on the company’s relatively high operating costs. In fact, Musk announced last month Tesla would lay off 9 percent of its workforce as part of a restructuring effort. By cutting overhead and amping up Model 3 production, the company aims to get into the black by the end of this year.
At this point, investors are sticking with Tesla. We’ll have to wait and see how the company’s third quarter results shape up. If Tesla reports another major loss, it may need to borrow more money to stay afloat, which may concern investors. However, if it starts moving toward profitability, Tesla could win greater confidence from its investors.
Stay tuned to TFLcar.com for more updates!