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Tesla Posts Record Loss in Q2 2017, but Still Beats Analyst Expectations

Automaker says it will produce up to 10,000 Model 3s per week by the end of 2018

After electric carmaker Tesla announced it had lost $336.4 million attributable to shareholders on gross automotive revenues of $2.287 billion in the second quarter of 2017, CEO Elon Musk stuck with a commitment – or perhaps it’s more of a prediction – that the Fremont, California assembly plant will produce 10,000 Tesla Model 3s per week by the end of 2018.

This sent Tesla stock upward Thursday morning. At close of the New York Stock Exchange Wednesday, prior to Tesla’s Q2 earnings release, the tech-automaker’s stock was at $325.89, up $6.32, or +1.98 percent for the day, setting its market cap at $53.53 billion. That’s $2.79-billion higher than General Motors’ market cap, and $9.73-billion more than Ford Motor Company’s.

Tesla’s negative free cash flow of $1.16 billion, funding Model 3 development, was less than analysts predicted, and so the stock reached $351.67 per share in after-hours trading Wednesday night.

“We wanted to make an affordable electric car, that is amazing, from Day One,” Musk said in his earnings call for analysts.

Musk said he believes the Tesla assembly plant will reach 5,000 Model 3s by the end of 2017, on to 10,000 by the end of 2018. The automaker has reservations for about 455,000 Model 3s, with new orders coming in at the rate of about 1,800 per day since its gala unveiling last Friday, when Tesla provided early first drives of the car.

“One could not ask for better reviews,” Musk told the Wall Street analysts. “About 80 percent of the journalists said they would buy the car themselves. Most of the other 20 percent said ‘probably.’”

Introduction of the Model 3 has not hurt Model S or Model X sales, Musk said; “in fact, this has turned out to be the opposite.” He said that the Tesla Model 3 is selling with virtually no marketing effort at all.

Musk and his team on the analysts’ call, chief financial officer Deepak Ahuja and chief technical officer J.B. Straubel, emphasized again how much they’ve learned about auto manufacturing by building the Models S and X, though they did not explain how the Fremont factory, which assembled no more than 450,000 Toyotas and Pontiacs in a good year, would continue to build all three models with the goal of reaching 500,000 Model 3s per year by the end of next year.

Musk, Ahuja and Straubel expect the Tesla Model 3’s profit margin will reach under 20 percent by the end of 2017, and 25 percent by the end of 2018, numbers only seen by traditional automakers’ most profitable models. Tesla does not use generally accepted accounting principles (GAAP) in estimating such margins.

Musk did correct a statement he made during the first-quarter 2017 earnings call, May 3, when he said the Model Y crossover/utility would share virtually no components with the Model 3.

“The Model Y will bring substantial carryover from the Model 3, in order to get it to market faster,” he said.

A new release of Tesla’s AutoPilot semi-autonomous software is close to ready, Musk said, and “this is really becoming something special.”

Musk last year announced plans for a self-driving Tesla demonstration by 2017, though the departure of three key executives on the Autopilot team may have delayed such plans. Wednesday he said he still plans to demonstrate a Tesla driving itself from Los Angeles to New York City.

“I believe we’re still on-track for that. If it’s not by the end of the year, it will be very close.”

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