American electric carmaker Tesla surpassed analysts’ expectations with its second quarter figures. But CEO Elon Musk warned that Tesla would deliver less cars than planned due to assembly line problems with its long-awaited Model X. John Dyer reports from Boston.
The bad news outweighed the good for Tesla last week. On the good side, the fledging Silicon Valley company’s revenues increased, its losses were smaller than expected and its long-awaited Model X sport utility vehicle is on track for release next month.
The bad news, delivered by CEO Elon Musk during a conference call with investors, is that Tesla is unlikely to hit its target of delivering 55,000 vehicles to customers this year. Instead, the company might deliver 5,000 fewer vehicles due to problems converting its assembly line in Fremont, California to Model X production. Musk called it a “quite a challenging production ramp”.
Hardest car in the world to build
The assembly line issues stem from interior components on the Model X, in particular a seat. “It’s an amazing seat, a sculptural work of art, but a very tricky thing to get right,” said Musk.
His other comments about Tesla’s production didn’t necessarily inspire confidence. “The Model X is a particularly challenging car to build, maybe the hardest car to build in the world,” he said. “But it is an amazing vehicle, and I think it will blow people away.”
During the conference call Musk repeatedly stressed that he was being realistic. The Fremont facility will produce around 1,700 cars a week in the near future, less than the 2,000 Musk has initially sought. Tesla of course aspires to 2,000 cars, but when Musk asked“Do we want to commit to that?” he answered with a disheartening “ideally not.”
Musk said he was still confident the company could reach its goal of producing 500,000 sales a year by 2020, pointing out that five years ago the company made only 600 cars a year.
“Now we can produce 600 cars in three days,” he said.
But the news caused Tesla shares to tank. In pre-marketing trading before the NASDAQ stock exchange opened on Thursday, Tesla shares were down by more than 21 per cent, to USD 248.98.
“It was a surprise to us,” said Robert W. Baird analyst Ben Kallo in San Francisco. “In the long run 5,000 cars is not a big deal, but it does raise eyebrows about the longer-term ramp.”
Tesla’s revenue for the second quarter was USD 955 million, a 24 per cent increase that was slightly higher than Wall Street analysts’ predictions. In the same period last year, its revenues were USD 62 million. The company also met its target of delivering more than 11,500 vehicles to customers, a 52 per cent increase.
Tesla devoted USD 405 million on capital expenditures for the Freemont assembly line and a new battery production facility in Nevada called the Gigafactory, which is on track to open next year. Those costs helped Tesla generate a loss for the quarter of USD 61 million, or 48 cents a share, less than the 59 cents forecast by analysts.
Musk predicts that the Gigafactory will eventually became a major revenue generator. Tesla has already booked USD 1 billion worth of orders for batteries that could store solar power in homes, he said. He expected to sell USD 40 million worth of batteries in the current quarter and as much as USD 500 million worth of batteries next year.
Musk also said that Tesla would unveil on August 15 an ‘autopilot’ feature on select cars as part of a pilot program. The feature will allow drivers to operate their cars without touching the steering wheel or pedals under certain conditions. While the feature is not exactly the same as a driverless car, it’s a step in that direction, he said.
But Tesla’s sophisticated systems also leave it vulnerable to hacking. So-called “white hat” hackers, who break into systems to expose their flaws publicly, managed to plant a worm in a Tesla Model S that allowed them to shut the car down remotely. Computer whizzes at San Francisco based firms Lookout and Cloudfare were behind the hack.
“We shut the car down when it was driving initially at a low speed of five miles per hour. All the screens go black, the music turns off and the handbrake comes on, lurching it to a stop,” said Marc Rogers, a researcher at Cloudflare.
Shortly after the hackers issued their announcement, Tesla executives said they had released a patch to prevent them from doing it again.