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Tesla debuts 'milestone' electric car, solar roofs amid cash burn concern

Electric car, energy storage and solar power company Tesla Inc. touted the recent launch of several key parts of CEO Elon Musk's "master plan," which aspires to create "stunning solar roofs with seamlessly integrated battery storage" and to expand its electric vehicle product line "to address all major segments." Now comes the hard part: ramping up production of its new products and successfully selling them to customers and investors.

After reaching "an incredible milestone" last week when Tesla delivered its first 30 Model 3 sedans, by far its least expensive car to date, the company now faces "an incredibly difficult production ramp" to meet surging consumer demand, Musk told investment analysts during the company's Aug. 2 earnings call. "We wanted to make a great, affordable electric car, which is a fundamental thing that is missing. We wanted to make that from day one. And if we could only have done it sooner, we would have," Musk said.

Despite a difficult manufacturing road ahead, the Tesla co-founder and CEO said the company is on track to meet its targeted production rate of 5,000 Model 3 units per week by the end of 2017 and 10,000 per week by the end of 2018. Tesla is assembling the Model 3 at its factory in Fremont, Calif., and building the drive units and lithium ion battery packs at its so-called Gigafactory 1 near Reno, Nev., a joint venture with Panasonic Corp. With an estimated range of 220 miles, the all-electric Model 3 debuted at $35,000 before incentives for the standard version, a price that has attracted a 12- to 18-month wait list.

Tesla delivered 22,026 Model S and Model X luxury electric vehicles in the second quarter, nearly 53% more than in the same period of 2016, driving the company's automotive sales to nearly $2.01 billion, a 93% jump compared to last year's second quarter, but flat compared to this year's first quarter.

Solar, storage, cash burn

Tesla also faces big challenges in its energy division after delivering the first of its highly anticipated solar roofs late in the second quarter and announcing an order in July for what Musk and Tesla CFO Deepak Ahuja labeled "the largest lithium-ion battery storage project in the world, with three times more power than the world's next most powerful battery storage installation" in an Aug. 2 update letter. The 100 MW/129 MWh system is scheduled for installation at a wind farm in Australia later this year. Musk hopes to have "a very substantial portion of the battery pack already done in about 8 weeks," he said, despite "all the shipping and logistic challenges of getting things across the Pacific."

The company is producing its solar tile product in Fremont but plans to start production at its Gigafactory 2 site in Buffalo, N.Y., by the end of this year. "We are so confident in the superior durability of our solar roof tiles that we offer the best warranty in the roofing industry — the lifetime of your house, or infinity, whichever comes first," Musk and Ajuja wrote in their letter.

Tesla delivered 97 MWh of energy storage systems and 176 MW of largely conventional solar projects in the second quarter, generating nearly $287 million in revenue for the quarter compared to less than $4 million in last year's second quarter, which preceded its acquisition of SolarCity Inc. Tesla's solar business is in transition as it promotes its solar tile product and moves increasingly toward cash sales instead of leasing. The company also monetized $313 million in gross proceeds in the second quarter from the equity interest sale of "already deployed solar leases," the executives said in their update letter.

While Tesla posted an adjusted net loss of $1.33 per share in the second quarter of 2017, that improved on its $1.61 per share net loss in the year-ago quarter and also beat S&P Capital IQ's consensus estimate of a $1.92 per share loss. Where investment analysts seem more concerned is with the increase in capital expenditures that will accompany Tesla's buildout of Gigafactories 1 and 2.

"In our initial impression, we note positive fundamentals," CFRA Equity Research analyst Efraim Levy said in an Aug. 2 note to investors. "However, while cash increased to $3 billion at quarter end, we think that is timing related and that second half spending will be an above consensus $2 billion, and could likely necessitate a capital raise in 2018."