Tesla Motors Inc. Loses $4,000 on Each Car it Sells

Tesla Motors
Image by Maurizio Pesce

Tesla Motors Inc. (NASDAQ:TSLA) reported its quarterly earnings after the closing bell last week. Its stock price plunged 11.3% on the next day, marking the biggest drop of Tesla’s stock price since September 2009. (Source: Tesla Motors, last accessed August 10, 2015.)

The company produced a record 12,807 vehicles in the second quarter, and delivered 11,532 vehicles. The thing is, if you divide Tesla’s operating loss by the amount of vehicles delivered, you see that it was losing $4,000 on each car.

This is quite problematic as the company is burning though its cash reserves. At the end of last year, Tesla had $1.9 billion in cash and cash equivalents. Midway though this year, its cash and cash equivalents were down to $1.15 billion.

Tesla has some very ambitious capital spending plans as it prepares for the launch of its first sport utility vehicle—the Model X. The company had a plan of $1.5 billion in capital spending in 2015. So far it has spent $831 million, meaning it would spend around $700 million in the remainder of this year.

The question is; how would Tesla fund all the spending when it is losing money on every car it makes? Well, here’s what Tesla’s founder and CEO Elon Musk said in the conference call: “I don’t think that there’s not a need to raise equity capital.” That is, the company might be raising more capital and selling more stock in the future. (Source: Seeking Alpha, last accessed August 10, 2015.)

By the way, the headline numbers of Tesla’s earnings report were not that disappointing. In the second quarter of 2015, the company’s non-GAAP revenue was $1.2 billion, almost 40% higher compared to the year-ago period. Even the bottom line was not that bad; adjusted net loss was $61.0 million, translating to an adjusted loss of $0.48 per share, which beat analysts’ expectation of a loss of $0.60 a share.

For the future, the company has ambitious plans. The Model X is scheduled to launch sometime later this year, while the Model 3, a $35,000 car targeted at the mass public, will launch in 2017. Tesla is also moving into solar panels to power homes and utility companies. These could serve as a double-edged sword: the plans give the company huge potential, but also come with substantial capital expenditure. From what we’ve seen in the past week, investors seem to be on the cautious side.