Tesla’s loss widens as EV production increases

By Myles McCormick
Published: Monday, 22 August 2016

Increase in capex leads to Q2 loss despite higher revenue at $1.3bn is up y-o-y; plans to buy Solar City for $2.6bn.

US-based electric (EV) producer Tesla Motors Inc. reported a net loss in GAAP terms of $293m for Q2 2016, a deeper loss both year-on-year (y-o-y) and on a sequential basis.

The company made a loss of $184m on Q2 2015 and $282m in Q1 2016.

The increase in this figure in the most recent quarter was driven by a capital expenditure of $295m as the company seeks in to increase vehicle production capacity and accelerate the construction of its lithium-ion (Li-ion) battery 'Gigafactory’ in Reno, Nevada to reach a production target of 500,000 vehicles in 2018.

Gross revenue, also in GAAP terms, was $1.3bn, meanwhile, up from $1.15m in Q1 2016 and $1.2bn in Q2 2015.

In a letter to shareholders, Tesla’s CEO, Elon Musk, and chief financial officer, Jason Wheeler, noted that the company had increased its previously reported Q2 vehicle delivery level to 14,402 from 14,370.

It plans to deliver 50,000 vehicles in H2 2016, which would still leave it below a previously announced target of between 80,000 and 90,000 vehicles for the full year of 2016.

Tesla was producing 2,000 vehicles a week by the end of Q2. According to Musk and Wheeler’s letter, barring further supply constraints, the company will end Q3 with a production rate of 2,200 vehicles per week and Q4 with 2,400 vehicles per week.

In a note on the earnings, Barclays analysts observed "a larger-than-expected loss, lower cash generation and a guide-down in H2 gross margins and a guide-up in H2 operating expenses (which mathematically implies lower operating income)".

However, Barclays added: "Tesla stock is less driven by earnings results today than it is on future prospects. And while we continue to see risk to the bright future prospects painted by the bulls, it’s tough for us to see anything in this result
that otherwise changes this outlook."

Tesla did not reveal much in terms of further details regarding the construction of the Gigafactory or lithium demand in its shareholder letter or subsequent earnings call.

Q2 2016

Q2 2015

Change %

Gross revenue

$1.3bn

$1.2bn

+8%

Net loss

($293m)

($184m)

-59%

Earnings/share

($2.09)

($1.45)

-44%

Tesla to buy Solar City for $2.6bn

Tesla Motors Inc. will purchase solar panel manufacturer Solar City Inc. in a deal valued at around $2.6bn.

The tie up between the two companies, both of which entrepreneur Elon Musk holds a leading role in (CEO of Tesla and chairman of Solar City), will be an all-stock transaction and will see Solar City shareholders receive 0.11 shares of Tesla for each Solar City share, which equates to $25.37/share.

This is below a range of $26.50-28.50/share proposed in late June by Tesla for the takeover. Tesla expects the deal to close in Q4 2016 subject to review by the US Securities Exchange Commission review and approval by both sets of shareholders. A 45-day "go-shop" provision means Solar City will have the option to take advantage of any higher bid made in the interim period. 

SQM drops objections to Albemarle’s Atacama expansion

Chilean lithium producer Sociedad Quimica y Minera SA (SQM) will not pursue a legal challenge against a production increase due to be carried out by its competitor and neighbour, Albemarle Corp.

In a joint announcement made by the rival producers, which both produce lithium products in the Salar de Atacama in northern Chile, the companies said the challenge would be abandoned as part of a plan to work together to "safeguard the ecosystem" of the salar.

The companies said they would now seek to develop a "coordinated and informed environmental administration" to protect their surroundings.

Albemarle, the ultimate owner of Rockwood Lithium, in January received permission to triple its rate of brine extraction from 142 litres per second (l/s) to 442 l/s and signed a memorandum of understanding (MoU) with the government to increase its level of lithium carbonate production in Chile to 70,000 tpa from current levels of 24,000 tpa.

SQM’s plans to attempt to block the expansion were leaked in April. An SQM spokesperson at the time told IM that the company’s only concern was that the increased rate of production could affect its own environmental commitments.