Tesla announced today that they had posted a $702 million loss in the first quarter of 2019 due to slower deliveries of the Model 3 electric vehicle.
$702 Million Loss Due to Fewer Model 3 Deliveries
Coming off its first ever back to back profitable quarters to close out 2018, Tesla announced today in its quarterly financial filing that it had lost $702 million from January to the end of March.
The company reported having $2.2 billion in cash or cash equivalents on hand, which was $1.5 billion less than it had on hand to finish out 2018. Tesla says that the loss is attributable to a delay in deliveries of the Model 3, having only delivered half of the number they had expected with ten days left in the quarter. Those deliveries will roll over into the second quarter.
There were several reasons for the delivery delays, according to the report, but one of the biggest being the opening of the Chinese and European markets for the Model 3 in the first quarter. The first half of the quarter was focused on meeting the overseas demand for the Model 3, while the second half was more focused on domestic deliveries.
The international deliveries were difficult, however, so only a short delay in shipping the vehicles overseas—a much more involved logistical challenge than domestic delivery or producing the vehicles for the overseas markets in overseas factories—was enough to push many of the deliveries into the second quarter.
The Model 3 Dominated the Premium Vehicle Market, Making Inroads Elsewhere
Tesla said that the Model 3 beat its competitors in the premium vehicle market by a wide margin, outselling the nearest rival in terms of cars sold by nearly 60 percent. Tesla claims this is due to the price of electric vehicles (EV) dropping below the price of a premium gas-powered equivalent.
While Tesla’s vehicles are still classified as premium vehicles, Tesla said that they’re seeing real signs of branching away from premium buyers. With the introduction of the Model 3 Standard Range and the Model 3 Standard Range Plus, nearly 70% of the trade-ins they received were non-premium vehicles, indicating that there is demand outside of the premium vehicle market for Tesla vehicles, especially the Model 3.
Tesla also stressed that their global roll-out of the Model 3 is in the very early stages and it anticipates being competitive beyond the US market. While the Model 3 Standard Range—starting at a price of $35,000—has received a lot of publicity, the more expensive Long Range and All-Wheel drive options are still a majority of Model 3 sales.
Model S and Model X Deliveries Decline, but Long Term Opportunities Seen
Tesla reported that deliveries of the Model S and Model X fell to 12,100 from the fairly steady 25,000 deliveries per quarter they had over the previous two years.
Though not entirely owing to the beginning of the phase-out of the US Federal electric vehicle tax credit, it certainly didn’t help, though seasonal factors may also have played a role in the reduction of deliveries of Tesla’s more expensive premium vehicles.
The Model S and Model X also saw their production line upgraded to allow for the improved powertrain for the two vehicles, which promise to boost both performance and extend the range of the vehicles, which Tesla claims are already the longest in the EV industry.
Moreover, Tesla highlights the rapidly advancing capabilities of its Autopilot system and the anticipated roll-out of its full self-driving (FSD) system in the next year and a half, pending regulatory approval.
As Tesla explained during its Autonomy Day event, the three vehicle models are all being manufactured with Tesla’s new FSD neural network acceleration architecture, built into two custom built processors built specifically to run a neural network, the first of its kind in the world, according to Tesla.
With the hardware in place, vehicles sold in the next year and a half will already have Tesla’s FSD capable computer built in, only needing an over-the-air update to activate the system, similar to how updates to its Autopilot system are pushed out now.
Tesla is counting on this readily available network of FSD capable vehicles to launch its RoboTaxi autonomous ride-share network, which will allow owners to add their Tesla vehicles to the Tesla RoboTaxi network and make money from they vehicle when they are not using it, with Tesla planning on taking a 20 to 30 percent fee from every ride. During the fleet build-up, Tesla expects the network to be cash flow neutral, at least according to Elon Musk’s statements during the Autonomy Day event, but once the fleet is fully populated, Tesla expects that they will see a new, steady, and rather large revenue stream from the RoboTaxi network.
That’s the hope anyway. Like everything else with Tesla, the road to the future requires two steps forward, one and a half steps back, and the occasional rebuilding quarter from time to time.