Tesla Plans to Produce 500,000 Cars in 2018

Tesla Plans to Produce 500,000 Cars in 2018
Image credit: John Leyba | Getty Images

Tesla Motors Inc. said it was stepping up production plans for its upcoming Model 3 mass-market sedan and would build a total of 500,000 all-electric vehicles in 2018, two years ahead of schedule, but warned that spending will ramp up in tandem.

The company, which three months ago aimed to make a net profit in the final quarter of this year, gave no profit target on Wednesday and said capital spending would rise about 50 percent more than previously forecast this year, to around $2.25 billion.

New shares and debt will likely be issued at some point, Chief Executive Elon Musk added.

Tesla, which produces the luxury Model S sedan and Model X sport utility vehicle, aims to become a high-volume automaker in a matter of years and already is valued on par with some of the biggest car companies in the world.

Shares of the company, run by tech entrepreneur Musk, rose more than 5 percent in after hours trade after it announced its first-quarter results and beefed-up production targets.

Musk's ambitions for clean cars, as well as rocket and solar businesses, have attracted a personal following often compared to that of the late Steve Jobs, but skeptics are also legion.

Tesla reported a wider first-quarter net loss, although results broadly beat Wall Street targets. It also said it was on track to deliver 80,000 to 90,000 electric vehicles this year, as it accelerated its target for Model 3 output.

Tigress Financial Partners analyst Ivan Feinseth, who rates Tesla shares "neutral," said growing pains were to be expected while Tesla ramps up, but the company's cars were "close to perfect."

"It's going to be challenging, making cars is hard and there are all sorts of moving parts and competition will come from known and unknown places," said Feinseth.

"I will suggest it's going to take a lot of capital. But car manufacturing is a capital intensive business. (Musk) has had no problem raising money in the past."

The Model 3 sedan, set to go into production in late 2017, has generated massive interest since its unveiling on March 31.

Some analysts have questioned Tesla's ability to smoothly and quickly transition to higher-volume production, given the rocky start for its Model X. The technology-heavy SUV faced problems including parts shortages and quality issues, such as non-fastening doors.

Early on Wednesday, before announcing its financial results, Tesla said two top manufacturing executives were leaving the company.

Musk said the company had excelled at design and technology, but a new premium was being placed on manufacturing: "The key thing we need to achieve in the future is to also be the leader in manufacturing," Musk said. "It's the thing we obviously have to solve if we are going to scale and scale profitably."

Standard and Poor's Global Market Intelligence analyst Efraim Levy said the 500,000 unit production target sets a very high bar for Tesla.

"I would be betting that they don't make it," he said.

Musk also said a 2020 volume target was close to 1 million vehicles.

Tesla's new 500,000 target is still a fraction of what traditional, full-line automakers produce annually. Ford Motor Co. sold nearly 800,000 of its best-selling F-Series pickups on the U.S. market last year.

Tesla's net loss widened to $282.3 million, or $2.13 per share, in the first quarter ended March 31, from $154.2 million, or $1.22 per share, a year earlier.

Excluding items, the company lost 57 cents per share. Analysts had expected a loss of 58 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose to $1.15 billion from $939.9 million. Non-GAAP revenue of $1.60 billion just topped the analyst consensus, by about $5 million.

(Reporting by Alexandria Sage and Peter Henderson in San Francisco; additional reporting by Kshitiz Goliya in Bengaluru; Editing by Ted Kerr and Tom Brown)

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