The Californian automaker of high-end electric cars posted a loss in the first quarter of the year, while at the same time outlined plans to increase spending. While the announcements have disappointed investors, it is not deterring founder Elon Musk from expanding the company and building a huge battery factory. John Dyer reports from Boston.
Tesla drove its electric cars into the red in the first quarter of 2014, but that is not stopping the company from pushing forward with ambitious plans to build new factories, spend more money on research and proceed with marketing its crossover vehicle which still does not yet exist: the SUV Model Tesla X. Founder and owner Elon Musk wrote in a letter to investors that China is the future market for Tesla vehicles.
Nearly 50 million loss
Tesla has to reckon with a loss of 49.8 million dollars in the first quarter of 2014. Revenues came to 620.5 million dollars in the same period. Although these are 10 per cent higher than the same period last year, they are only a meagre 1 per cent increase compared to the fourth quarter of 2013. Analysts had predicted much higher revenues of 683.5 million dollars.
Tesla claims to have produced 7,535 Model S sedans – its only vehicle now in circulation – in the first quarter, and selling 6,457 to customers. The company expects to sell 7,500 units in the second quarter of this year as part of its goal of selling more than 35,000 cars this year. The Model S costs 70,000 to 100,000 dollars.
To reach those goals, Tesla is betting big on its future. “We are pressing forward on a variety of initiatives to continue our growth in 2015 and beyond,” CEO Musk wrote to investors on Wednesday. “2014 is already a very busy year.”
The 5-billion-dollar battery factory
Tesla wants to push forward with its plans to build its 5-billion-dollar battery factory, the so-called gigafactory. It initially decided against building it in California – even though its headquarters and production facilities are both located in the Golden State – because it takes too long to receive permits. But Musk indicated that the state is back on the table, along with Arizona, New Mexico, Nevada and Texas.
The factory is expected to create as many as 6,500 jobs building 500,000 lithium-ion batteries a year. Tesla has signed a letter of intent with Panasonic and discussed deals with mines to acquire parts and raw materials for the factory. Musk said he believes the gigafactory will cut Tesla’s battery production costs by 30 per cent.
Because the factory is crucial to his plans for expansion, Musk said he would prepare two sites simultaneously in order to make sure one will come online by 2017. “We can’t afford to wait a year or more for permits to proceed,” Musk told analysts during as conference call. “If we don’t have the gigafactory online when we have the vehicle capacity online we would be in deep trouble.”
Sales and manufacturing in China
The gigafactory is part of as much as 850 million dollars in capital expenditures this year, said Musk. In the first quarter, research and development spending soared by half to 81.5 million dollars, much of which went to work on the Model X, an electric SUV hybrid. The company is putting money towards adapting the Model S to foreign markets like Britain, Hong Kong and Japan. Further money has to be invested on fixing an issue involving batteries that burst into flame when they are punctured on the road.
In his letter to investors, Musk wrote that he is particularly optimistic about the prospects for Tesla in China, the world’s largest car market. The investments in capacity will pay off as Tesla cars grow more popular in the US and abroad, especially China, said Musk. The company started selling its first cars in Beijing and Shanghai last month. Musk hopes it will be building Tesla cars in China in three or four years.
Photo credit: Tesla Motors