As expected, Tesla saw some big losses this quarter, mostly related to Model 3 delays. The company reported $675 million in losses attributable to shareholders in Q4 , ending 2017 with nearly $2 billion in losses for the entire year.
But, unlike other nuclear companies posting huge losses quarter after quarter, Tesla’s earnings have been moderate. Just this quarter, Tesla earned $3.3 billion in revenue from car sales, leasing, energy products, and services. For the year, the company reported nearly $12 billion in revenue. People want Tesla products, but Tesla can’t stop spending more money than it is.
The company (naturally) argued that all losses were temporary. “At some point in 2018, we expect to begin delivering positive quarterly operating income on a stable basis,” the company said in its investor letter. Musk was specific in the next earnings call that he expects the company to be profitable through more expansion Generally Accepted Accounting Principles this year.
That line may sound familiar: Tesla made similar predictions in early 2016, and while the company actually had its second-ever profitable quarter that year, it resumed its losing streak soon after .
Tesla is now to produce Model 3. In early January, Tesla reported good delivery numbers for Model S and Model X vehicles, and the company’s energy business certainly seems healthy (Tesla installed 143MWh of battery storage in Q4 2017, not counting its large installation in South Australia). But investors are worried about the Model 3 because it’s supposed to be a mass-market car that will fly off the assembly line and make money for the money-burning company.
The entry-level electric Model 3 debuted in July 2017 to great fanfare, but Tesla has struggled for months to increase production to meet demand. A quarter after the Model 3 was introduced, Tesla revealed that it had delivered only 266 cars. The company said the issue was bottles on the production floor, and it bought an auto and machinery company called Perbix, presumably to handle those bottles.
But at the end of Q4, deliveries seem to be slightly better. In early January, the company released a statement on Q4 Model 3 deliveries ahead of today’s Q4 earnings call, and Tesla said it had delivered only 1,550 Model 3s in Q4. Earlier in the year, the company said it expected to produce 2,500 Model 3s per week by the end of Q1 2018 and 5,000 per week by the end of Q2 2018. But an investor letter published today seems to hedge that estimate too. more. .
“It is important to note that, while these are the levels we are focused on hitting and we have plans in place to achieve them, our previous experience on the ramp 3 model has shown the difficulty of accurately predicting certain production rates specific at specific points in time,” the letter said.
Musk’s attitude seems to be that there is no doubt Tesla will achieve its ramp numbers and that small delays are negligible in the big picture. “If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production,” he said on today’s earnings call, referring to yesterday’s SpaceX Falcon Heavy launch.
Tesla doesn’t seem to want for side requests. The company builds sustainable lithium-ion battery storage for homes and utilities: it built 330 new Superchargers last year, and just signed a new deal with South Australia to build a massive 250MW virtual power plant. Last fall, Musk revealed a semi-truck scheduled for production in the near future and a new ultra-luxury roadster. Musk has hinted that, after the currently unannounced Model Y is unveiled, Tesla will develop a pickup truck.
In today’s investor letter, Tesla hinted at the continued development of Autopilot, an autopilot feature that saw great controversy in previous years. The company revealed that it has completed a “major overhaul of the basic architecture of our software” enabling “step-changing advancements in data collection and analysis and fundamentally improving its machine learning capabilities.”
Musk also denied that LiDAR is particularly important on cars for autonomous driving. “We have to solve passive optics really well,” he said, referring to active image recognition based on camera data. “At the point where passive optics is extremely well resolved, what is the point of active optics?”
As for power, the company reported that the South Australian installation is working as planned in its investor letter. “This project is already providing great benefit by meeting high summer demand when supply is limited and by responding immediately to unexpected interruptions or frequency reductions in the grid,” Tesla wrote. “Due to the success of this project, we see an increase in demand for Powerpack, our commercial energy storage product.”
Musk briefly talked about the semi truck on a phone call today as well. He said a production rate of 100,000 units a year would be a reasonable expectation four years from now (although given previous year’s projections for the Model 3, it’s safe to take that with a grain of salt). “I think we might be able to exceed the specs that were announced last year, which would be exciting,” added Musk. Tesla surprised many by announcing the 500-mile campaign last year.
Musk also talked about the Fremont factory and the Gigafactory in Sparks, Nevada. It is noted that, on Model 3 production, the company’s semi-automatic lines work faster than fully automatic lines, but Tesla’s engineering company in Germany has developed a fully automatic line that will deliver to Tesla facilities at the end of March. “Tesla’s competitive strength will not be the car; it will be the company,” Musk said. He added that the first thing for Tesla is “making the Gigafactory.”