Tesla presented mixed results from the second quarter of 2019, including a delivery record of 95,356 electric vehicles and record deployments of its energy storage products.
But Tesla's solar business has become a shadow of its former self, and the company's worse-than-expected loss spooked investors on Thursday.
The firm ended the quarter with $5 billion in cash and cash equivalents, putting it in a "comfortable" position to launch Model 3 production in China and Model Y production in the U.S., according to the company's investor letter.
Auto gross margin was down slightly, but that was "in spite of reductions in vehicle [average selling price] and lower regulatory credit revenue."
The company generated $614 million of free cash flow in Q2. Musk said the EV pioneer is "close" to self-funding, adding that it expects to break even in Q3 and make a profit in Q4.
But on the darker side of the ledger, Tesla posted a net loss of $408 million in Q2, to go along with a slightly-below-consensus revenue of $6.35 billion.
Analysts expected a loss of 40 cents per share, but Tesla disappointed with an adjusted loss of $1.12 a share in Q2. Last quarter, Tesla also missed revenue estimates on its way to losing $702 million.
And these results come on the heels of a number of vehicle price cuts that might have invigorated sales at the expense of profits.
Tesla shares dropped more than 12 percent in early trading on Thursday, to around $230.
Shanghai factory, Europe factory, Model Y
Tesla expects to begin production of a simplified, more cost-effective version of its Model 3 in Shanghai, China "by the end of the year," while starting Model Y production "by fall of 2020" in Fremont, California.
The CEO claimed the "significant overlap of components between Model 3 and Model Y" will ease manufacturing and keep costs down. He's optimistic about this model, saying, "Due to the large market size for SUVs, as well as higher ASPs, we believe Model Y will be a more profitable product than the Model 3."
Tesla is also accelerating its European Gigafactory efforts and is "hoping to finalize a location choice in the coming quarters."
Tesla added 101 vehicles to its mobile service fleet and opened 25 new store and service locations.
The persistent decline of Tesla solar
Tesla's solar business plummeted to a startlingly small 29 megawatts in Q2, down from 47 megawatts last quarter and a far cry from the 253 megawatts installed by SolarCity in the boom days of Q4 2015.
Tesla said, "We are in the process of improving many aspects of this business to increase deployments," but this solar free fall in a modest growth market looks like a deliberate curtailment of its business.
As GTM reported, Tesla was once the unquestioned leader in the residential rooftop market with a market share of around 33 percent, but today, the company is No. 3, and its market share during the first quarter was a little more than 6 percent, according to analysts at Wood Mackenzie Power & Renewables.
WoodMac forecasts nearly flat 3 percent growth for the residential solar market in 2019.
But as Austin Perea, a senior solar analyst at WoodMac, noted in an earlier interview, "At the same time Tesla’s market share has faltered, its customer-acquisition costs have dropped."
In the second half of 2018, the company was spending $0.40 per watt to acquire customers. By the end of 2019, WoodMac analysts said Tesla could be spending “close to a quarter” per watt. That compares well with Vivint's and Sunrun's customer-acquisition costs at $0.94 a watt and $0.90 a watt, respectively.
There was no word from Tesla on its solar roof, despite this being "the year of the solar roof." Musk has said that the solar roof product is already on "version 3," although one would be hard-pressed to locate a roof with version 1 or 2.
Three years after its introduction, and after having received deposits from interested homeowners, Tesla has connected just a dozen or so solar-integrated roofs to the grid. Tesla plans to ramp up the production of the solar roof with "significantly improved manufacturing capabilities during 2019."
Electrek obtained a price quote last month, along with diagrams of the expensive and beautiful solar roof tiles. The product line includes custom fittings, flashings, vents and ridge caps to better match the roof. Tesla did not provide an update on the production of the solar roof in the Buffalo, New York factory and the 1,460 jobs the company has pledged to create there by next year.
The author of this article received a call from a "Janis" at Tesla a month ago, letting me know that I could order and place a $1,000 down payment on solar roof tiles directly from the company website. Janis said that, after providing some basic home information, the website would generate a price quote for the roof tiles. She noted that only the textured tile option was available right now.
She also said that the price quoted was going to be 40 percent to 50 percent lower than the actual price.
There was some positive news about Tesla's storage business: Powerwall and Powerpack deployment grew by 81 percent in the second quarter to a record 415 megawatt-hours. Powerwalls are installed at more than 50,000 locations.
The investor letter states, "Additional cell supply combined with our new module line designed by Tesla Grohmann enabled a step change in energy storage production." Tesla's letter from last year claims "a better supply of cells and new manufacturing equipment" will grow storage deployments to "over 2 gigawatt-hours in 2019" with growing profitability.
Guidance and other Tesla nuggets
Some other takeaways from the call:
- Tesla co-founder and CTO JB Straubel is transitioning to an advisory, nonoperational role after about 16 years at the automaker.
- Model 3 average selling price is stable at approximately $50,000.
- CFO Zach Kirkhorn (in April) pledged a return to profitability by the third quarter.
- During Wednesday's call, Musk said: "I think it's difficult for people to really feel an exponential. We didn’t evolve to feel exponential, we can feel linear, but we could only understand an exponential at a cognitive level. But Tesla is expanding at an exponential rate."
Musk is standing behind his contentious guidance of 360,000 to 400,000 vehicle deliveries for this year — but it's going to be a challenge. It's a jump of 45 percent to 65 percent compared to last year.
The firm has delivered just 158,000 units in the first half of the year. That means that the Fremont factory is going to have to deliver about 100,000 vehicles per quarter in Q3 and Q4 — and more records will have to be broken.
Tesla expects its 2019 capex to be about $1.5 billion to $2 billion, a reduction from previous guidance.
Tesla stock is down 23 percent in 2019, despite strong gains in June and July. The S&P 500 index is up 19 percent for the year.