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Still in the red, Tesla eyes 'sustainably positive' operating profits in 2018

A day after Elon Musk's Space Exploration Technologies Corp. sent an electric sports car on a rocket to Mars, the Tesla Inc. CEO said the company ultimately would master the troubled launch of its mass-market electric sedan.

"People think that if we can send a roadster to the asteroid belt, we could probably solve Model 3 production," Musk told investment analysts on the company's Feb. 7 earnings conference call. "It's just a matter of time." Tesla, which is roughly six months behind schedule, is targeting a weekly Model 3 production rate of 5,000 vehicles by the end of June. The delay, which has negatively affected manufacturing partner Panasonic Corp., is "really quite small in the grand scheme of things," the CEO asserted, saying the company's goal of selling 1 million electric cars per year by 2020 was still in play.

Tesla has its work cut out, though. To reach that target, it must grow by nearly 10 times in three years. After delivering 29,967 electric vehicles in the fourth quarter of 2017, including 1,542 Model 3 cars, Tesla surpassed 103,000 deliveries last year. If the integrated solar, energy storage and electric vehicle company finally achieves full liftoff on its first car for the masses, however, it may land in the profit zone this year.

"As we ramp production of both Model 3 and our energy products while keeping tight control of operating expenses, our quarterly operating income should turn sustainably positive at some point in 2018," Musk and CFO Deepak Ahuja said in a letter to shareholders. "I am cautiously optimistic we will be GAAP profitable," Musk clarified on the call.

For the fourth quarter of 2017, Tesla posted an adjusted loss of $3.04 per share, beating S&P Capital IQ's consensus estimate of a loss of $3.15 per share, on nearly $3.3 billion in revenues. Tesla's adjusted loss for the year was $8.66 per share, while revenues totaled $11.76 billion, up from $7 billion in 2016.

Storage surge, solar slump

In its energy division, Tesla this year expects to deliver "at least three times" the energy storage capacity it deployed in 2017, executives said in their letter. By supplying 143 MWh in the fourth quarter of 2017, compared with 98 MWh in the prior year's quarter, Tesla delivered 410 MWh for the full year. That implies it plans to deliver at least 1,230 MWh in 2018. Tesla will account for a 100 MW/129 MWh system it installed in South Australia in the first quarter of 2018, the executives added.

Tesla delivered just 87 MW of solar in the fourth quarter of 2017, compared with 201 MW a year ago, and 20% less than in the third quarter of 2017. The falloff was in part related to the company's strategy "to focus on projects with better margins," executives said. In addition, an undisclosed volume of solar capacity was delayed because of a shortage of storage systems for residential customers who ordered battery-backed solar installations.

While solar volumes "may continue to be impacted by these factors over the near term," the company expects growth to resume "later this year," Musk and Ahuja wrote. Given the strategic shift and the "significant complexity" of a new roof-integrated solar tile being produced at Tesla's so-called "Gigafactory 2" in Buffalo, N.Y., Tesla is "deliberately ramping production at a gradual pace," they said.

To fuel its growth in 2018, the company expects to spend "slightly more" than its $3.4 billion in capital expenditures in 2017, executives said, mainly to increase production at Tesla's Gigafactory 1 battery facility near Reno, Nev., and its car factory in Fremont, Calif., as well as to expand its car charging infrastructure and service centers. Tesla entered 2018 with a cash balance of $3.4 billion.