Tesla records higher losses on expansion push
Tesla's losses for Q2 2016 were $293m, up from $184m the previous year, while operating expenses rose by around a third to $513m. Tesla said the losses were due to "engineering, design, and testing expenses related to Model 3 supplier contracts, and higher sales and service costs associated with expanding our geographic presence." Some analysts asked how long the company could lose money before investors' patience ran out while others pointed to improvements in manufacturing and a reduced delivery backlog.

Tesla Motors Inc. posted a loss for the 13th straight quarter and cautioned investors that it faces sharply rising expenses in the quarters to come as it gears up to boost production capacity to add a new model.

The second-quarter losses widened to $293 million compared to $184 million a year earlier. Revenue rose 33 percent to $1.27 billion but operating expenses grew at about the same rate to $513 million.

The earnings report comes as the automaker faces huge outlays to complete a Gigafactory battery plant in Nevada as well as finalizing the design and production plans for the Model 3 sedan, a moderately priced vehicle that is critical to Tesla’s goal of creating a mass market for electric cars.

Tesla said it expects operating expenses for all of 2016 to increase 30 percent. That figure is based on Tesla’s preferred non-GAAP accounting method, which diverges from generally accepted accounting principles.

“The increases come from engineering, design, and testing expenses related to Model 3 supplier contracts, and higher sales and service costs associated with expanding our geographic presence,” the company said.

Tesla estimates that it will spend $2.25 billion as part of ambitious production plans for the Model 3, which CEO Elon Musk has said he wants to start building by July 1, 2017.

The automaker said it added $1.7 billion to its cash coffers through a stock sale in May and ended the second quarter with $3.25 billion in cash and cash equivalents. The cash pile was also padded by customer deposits on the Model 3; Tesla said it is holding 373,000 refundable customer deposits for the coming sedan.

Even so, questions remain about Tesla’s ability to raise more cash for the far-reaching goals under Musk's “Master Plan Part Deux," which calls for an expansion into more vehicle segments and a push into solar power markets.

Tesla agreed this week to acquire SolarCity, a solar-power company where Musk serves as chairman, for $2.6 billion in stock.

Despite the dour earnings report, Wall Street barely blinked; Tesla shares slipped just a third of a percent in after-hours trading. But analysts say investors’ patience will be tested as costs escalate.

“The most critical numbers in Tesla’s Q2 report, revenue and profit, came in worse than expected, though that will have minimal impact on the stock’s value,” said Karl Brauer, a senior analyst for Kelley Blue Book. “The bigger question: How long can Tesla lose money, and how wide can its losses get, before Wall Street cries foul?”

With that in mind, Jason Wheeler, Tesla’s CFO posited during a conference call with analysts on Wednesday that Tesla could turn profitable on a non-GAAP basis soon.

“If we can execute on our production and our delivery goals in the second half of the year, we’ve got a great chance at being non-GAAP profitable,” Wheeler said.

Tesla said it delivered 14,402 vehicles in the second quarter -- 9,764 Model S sedans and 4,638 Model X crossovers. Total deliveries for the first half of 2016 stood at 29,212.

Despite lower-than-expected production numbers in the first half of the year, Tesla remains confident it can hit delivery goals by the end of 2016. Citing decreasing production hours per vehicle, Tesla said it was on track to deliver another 50,000 vehicles by the end of the year, meeting the low end of its 80,000-90,000 vehicle delivery target for 2016.