Tesla says gross margin on the Model 3 has turned from slightly negative to slightly positive
To say Tesla’s production of its much-hyped Model 3 was slow out of the blocks could be putting it mildly, but it looks like things are starting to pick up for the debut mass market sedan. The company is now pumping out the vehicle in unprecedented numbers, and is eying sustainable profitability for the first time in its 15-year history.
Hundreds of thousands of customers preordered the Tesla Model 3 following its launch in April 2016, so meeting the huge demand was always going to take time. But after originally planning to produce 20,000 a month by December 2016, the company has been beset by continual production bottlenecks that have turned out underwhelming numbers.
It produced 260 cars in Q3 last year, followed by 1,542 in Q4, and shipped 9,766 in Q1 of this year. In February, the company targeted a Model 3 weekly production rate of 5,000 by the end of Q2.
It may have just missed the cutoff, but in the month of July, the company claims to have pumped out 5,000 Model 3s per week on multiple occasions. Its stated aim is to build that up to 6,000 per week by late August, and then onto 10,000 per week sometime next year. Overall, it expects to produce 50,000 to 55,000 per week in Q3.
Tesla has posted some big losses this year, and nothing changes this time around with a total US$718 million net loss attributable to shareholders (this followed $710 million in Q1 and $675 million in Q4). On the plus side, revenue is also on the up, with the company raking in $4 billion in Q2 compared to $3.4 billion in Q1 and $2.8 billion in the same quarter of 2017.
This together with “dramatic” savings in production due to things like lower labor hours per unit and lower material costs has the company optimistic about its financial outlook. It says gross margin on the Model 3 has turned from slightly negative to slightly positive.
In the final week of June it produced a total of 7,000 Model 3, Model S and Model X vehicles, and it says a total vehicle output of 7,000 per week, or 350,000 per year, would see it become a profitable operation.
“It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable,” reads the letter signed by CEO Elon Musk and Chief Financial officer Deepak Ahuja. “In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive.”