Tesla posts wider-than-expected loss in quarter as margins fall, shares down 10%

 Tesla posts wider-than-expected loss in quarter as margins fall, shares down 10%

By Alexandria Sage and Vibhuti Sharma

SAN FRANCISCO (Reuters) - Tesla Inc on Wednesday missed financial targets in its second quarter despite record deliveries of its electric vehicles, raising doubts the carmaker will hit its target to be profitable this quarter.

Automotive gross margins, a focus for investors, dropped in the quarter from 20% to 19%, even as revenue from robust deliveries fell short of analysts' expectations.

Shares fell 10% after hours.

Under pressure to meet his promise to post profit in the second half of the year, Chief Executive Elon Musk is trying to contain costs while still spending on major initiatives from a Shanghai factory and assembly-line to upcoming models such as the Model Y SUV and a Semi commercial truck.

"We believe our business has grown to the point of being self-funding," Tesla said in a statement, although the company provided a more nuanced prediction about profit than last quarter.

After initially promising Tesla would be profitable starting from the third quarter of 2018, the company warned in February it would not be profitable in the first quarter, due to a major drop in deliveries. It gave a similar warning for the second quarter in April, saying it expected to return to profitability in the third quarter.

On Wednesday, Tesla was less definitive: "We continue to aim for positive GAAP net income in Q3 and the following quarters, although continuous volume growth, capacity expansion and cash generation will remain the main focus."

Investing.com analyst Clement Thibault said Tesla's results "will inevitably lead to more questions about its ability to stabilise and turn a profit."

Even while growing, the company has laid off workers and pledged to close some stores to lower costs. Facing increased competition from a slew of European rivals with electric offerings, it has also tinkered with its pricing.

Most recently, it eliminated the least expensive versions of its Model S sedan and Model X SUV, while cutting the starting price of its Model 3 to $38,990.

Tesla said on Wednesday it had trimmed its capital expenditure target for 2019 to $1.5 billion to $2.0 billion, from $2.0 billion to $2.5 billion.

Tesla's strong second-quarter deliveries assuaged doubts about demand for the Model 3, but concerns linger, especially since a federal tax credit was cut by half on July 1 and expires at the end of the year.

Many analysts note that Tesla will be challenged not only to meet its deliveries target of 360,000 to 400,000 vehicles this year, but to keep profit margins from further eroding.

The company on Wednesday repeated a target of producing 10,000 vehicles per week by the end of 2019.

A 58.7% revenue rise to $6.35 billion in the quarter fell short of the $6.41 billion estimated by analysts, according to IBES data from Refinitiv, even as a non-GAAP loss of $1.12 per share was deeper than the loss of 36 cents they expected.

Shares of Tesla are down 22% since the beginning of the year, but they have been rebounding since early June, after hitting their lowest close since early 2016 at $178.97.

(Reporting by Vibhuti Sharma in Bengaluru and Alexandria Sage in San Francisco; Editing by Anil D'Silva and Lisa Shumaker)

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Updated Date: Jul 25, 2019 04:10:47 IST