Tesla reports loss narrower than Street's forecast

SAN FRANCISCO — Tesla's rocky financial road smoothed a bit as the electric automaker Wednesday reported an adjusted loss that was narrower than Wall Street expected, sending shares up 5% after hours.

In a shareholder letter released after the close of trading, the company led by Elon Musk cited "overwhelming demand" for its Model 3.

For the first three months of the year, Tesla said it lost $2.13 a share, or $282 million. Excluding certain items, the non-GAAP loss narrowed to 57 cents a share, or $75 million, better than the loss expected by analysts polled by S&P Global Market Intelligence. Other analyst forecasts had Tesla essentially meeting EPS expectations.

Revenue was $1.15 billion — an improvement over the year-ago quarter figure of $939 million — or $1.6 billion excluding certain items. That adjusted sales figure matched expectations.

Tesla shares closed down 4% at the end of trading Wednesday at $222.56, a slide that started hours earlier on news that two of the companies top executives, including its vice president of production, would be leaving.

Telsa's market cap of $29 billion makes it more than half as valuable as venerable Ford.

Tesla's progress toward profitability has been stymied of late by comparatively low-volume sales (it shipped 50,000 cars in 2015, or about the number of Ford F150 pickups that sell each month) and some issues with the rear seats of its new Model X SUV.

But CEO Musk has promised to boost sales to around 90,000 units a year with its current Model S and X lineup, while predicting more than that over time based on the tremendous consumer interest in the company's $35,000 entry-level electric sedan, the Model 3, due in a few years. In the past month, Tesla has logged some 325,000 $1,000 deposits for the vehicle.

On a call with investors Wednesday, Musk said that all his focus is on making sure manufacturing issues are ironed out so that the most cars can be make using capital that isn't wasted by production glitches. He even said his desk was currently at the end of the Model X production line, and that he frequently used a sleep bag in a nearby office in order to spend the night at the factory.

"Tesla is going to be hellbent on becoming the best manufacturer on Earth," said the soft-spoken founder. "We take it very seriously. We need to solve all production issues if we are going to scale rapidly and make the cars more affordable. The message to the best manufacturing people in the world is, we want you to join our company."

Musk said he was giving his team as well as any outside suppliers a July 1, 2017, deadline to begin production of the higher-volume Model 3 sedan, although he added that the date was "impossible," and more likely optimistic by a few months. Tesla plans to keep outside suppliers to a minimum, he said, in order to be able to cut down on the possibility of missed parts-delivery deadlines slowing production.

In the shareholder letter, penned by Musk and CFO Jason Wheeler, the company announced it would fast-track its goal of a 500,000-unit build plan to 2018, or two years earlier than anticipated due to projected demand for the Model 3.

"This (325,000-strong Model 3 order) implies about $14 billion in future sales, making the Model 3 introduction the biggest consumer product launch ever," the letter states. "Since then, reservations have continued to grow to surpass even our expectations. With Model 3, our mission of accelerating the transition to sustainable transportation is more achievable than ever."

The Model 3 has a base price of $35,000 and a range of 215 miles on its electric batteries. Some 93% of those placing a $1,000 refundable down payment on the Model 3 are new to Tesla, the company says. The 7% of customers putting in orders who already have a Tesla will receive priority on the wait list.

By contrast, the Model S and Model X often tops $100,000 once it is fully equipped.

Tesla also notes that plans to advance its 500,000-unit build plan by two years will require the company to "re-evaluate our level of capital expenditures, but expect it will be about 50% higher than our previous guidance of $1.5 billion for 2016. Naturally, this will impact our ability to be net cash flow positive for the year, but given the demand for Model 3, investing to meet that demand is the best long-term decision for Tesla."

Musk said that the company has not made any decisions about expanding the number of plants, but "manufacturing cars in California and shipping them all around the world doesn't make sense if you're going to more affordable vehicles," adding that it would be "natural" to open plans in Europe and Asia to meet large volume demands.

Some analysts have suggested that Tesla may need to raise more capital to successfully bridge this transition from a nice automaker to a populist one. On the call, Musk said the company hopes to hit 1 million vehicles by 2020, a volume level that could push it to profitability if Tesla can keep a lid on how much it costs to produce each car. Recent reports indicated that at present Tesla loses around $4,000 on each car it makes.

Musk reiterated on the call the need for the company to streamline its manufacturing process, noting that by design the complexity of the Model 3 is inherently simpler than tech-packed Model S and X cars.

"We have a tighter feedback loop between manufacturing and engineering now, so the risks of manufacturing is low," he said. "You can kill a fly with nuclear weapon, machine gun or a fly swatter. The end result is the same, but the level of difficulty is more significant, and the collateral damage is greater."

Although the Model X has had issues with its seats, Musk said the other night, after an X came off the line with zero defects, "I celebrated with the team at 3 a.m. It felt great."

Follow USA TODAY tech reporter Marco della Cava on Twitter: @marcodellacava