Tesla a victim of its own success

Electric vehicle manufacturer Tesla has posted a US $154 million loss during the first quarter of 2015, according to a report from respected industry publication, Automotive News.

But the loss has to be seen through the prism of US $1.1 billion revenue during the same quarter, which USA Today is reporting as "better than expected".  Tesla claims the loss last quarter was actually only $45 million on an adjusted basis.

The reasons for the red ink are basically two-fold.

Firstly, a significant burden hindering Tesla is the cost of tooling up to produce the Model X (pictured), which is due to go on sale in the third quarter of this year. Production capacity has been a long-standing problem for Tesla, unable to meet the sudden demand for its highly-regarded Model S, let alone the advance order bank for the Model X – with its unusual 'Falcon doors'.

It was reported in the Automotive News article that Tesla has taken "thousands" of US $5000 deposits for the SUV, and Tesla CEO Elon Musk admits that there's a lot of pent-up demand for the new car.

"We certainly have a lot of customers who have been waiting a long time," Musk was quoted saying in the article.

"This is really a great car. Because it has such a low center of mass it handles like a sports car even though it's an SUV, and it's got incredible acceleration. The performance is just surreal. Nothing else is comparable."

Tesla claims to have its supply constraint issue for the Model X in hand, and anticipates that with the SUV rolling out later this year, the company's accounts will turn to "cash-flow positive" by Q4.

The juggernaut will pick up speed, what's more, with the unveiling of the third model line, the Model 3, from around March of next year. Tesla plans for the smaller car to enter production from the end of 2017.

The other one-off cost is the large sum of money sunk into a new factory under construction in Nevada – the so-called Gigafactory – in a joint venture with Panasonic Corp. This facility will supply batteries for Tesla's stationary Powerwall application, as well as its automotive products: the Model S sedan, the Model X SUV and the projected Model 3 small car.

As Tesla tells it, the US $5 billion Gigafactory will literally double the world's lithium-ion battery production. It will commence operating next year, but Tesla already plans to expand its output by 50 per cent, simply to meet the demand for the Powerwall batteries. Since announcing the Powerwall concept, Tesla has received 38,000 'reservations'.

"The sheer volume of demand here is just staggering," Musk said. "We could easily have the entire gigafactory just do stationary storage."

For the moment, however, Tesla and Panasonic plan for just 30 per cent of the Gigafactory's output to comprise stationary batteries. Car production will be the priority for battery supply from the factory.

Tesla has already built over 11,000 vehicles this year, with the company forecasting total production for 2015 will reach 55,000 units.

But the company is struggling with the strengthening American dollar. Gross margins are expected to shrink from 26 per cent in the first quarter to "just under" 25 per cent in the second quarter, as a result. The company is raising prices of its product sold in Europe by five per cent to cover the difference in exchange rates. Customers who have already placed orders will be unaffected, the company says, since the price rises won't take effect until the third quarter.