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Tesla (TSLA) surges despite record losses of over $700 million – here’s why

After market close yesterday, Tesla (TSLA) reported record losses of over $700 million for a second quarter, but its stock is surging over 8% in aftermarket trading.

Here’s why the market is taking Tesla’s losses positively this time: it might be Tesla’s last quarterly loss.

Tesla CEO Elon Musk has been guiding that the longtime unprofitable automaker will finally turn cash flow positive during the second half of the year.

Now a month into the third quarter, Musk reiterated the goal and he now sees Tesla will virtually never be a money-losing company again aside for any potential major economic downturn.

Musk said during the conference call:

“From an operating standpoint, from Q3 onwards, we’re going to emphasize, our goal is to be profitable and cash flow positive for every quarter going forward. Now obviously, if there’s a big recession or there’s a severe force majeure event that interrupts the supply chain, that’s not always possible. But we’re confident that — and provided the economy is roughly where it is today, reasonably good and there’s not a big force majeure event, I feel comfortable achieving the GAAP income positive and cash flow positive quarter every quarter from here on out.”

That’s certainly the most positive comment that the CEO has ever made on Tesla’s financial situation looking forward and he made it with a clear view of the first of those potentially profitable quarters – now a month into the third quarter.

Musk did add that in some “major occasional cases” they may have to “pay back a big loan or something”, which could potentially result in an unprofitable quarter, but they plan to be cash flow positive absent of that.

That’s most likely the biggest thing that made investors overlook the massive loss that Tesla registered last quarter.

Despite that loss, Tesla still has over $2.2 billion in cash and cash equivalent, which is enough for the company to operate comfortably.

Another big factor contributing to the positive outlook of investors is the profitability of the Model 3. Tesla confirmed that they have already achieved a slight positive gross margin on the vehicle during the second quarter and now they plan to increase it to about 15% during the third quarter.

Already a month into the third quarter, Tesla should have a good idea of how to get there.

Tesla said that about 50% of Model 3 buyers are currently choosing the Dual Motor and Dual Motor Performance versions, which is going to increase the average sale price of the Model 3 and its profitability.

Right now, the average sale price of the Model 3 could easily be around $60,000 and with Tesla planning to produce and deliver over 50,000 vehicles in Q3, the Model 3 program alone could bring over $3 billion in revenue in a single quarter.

That’s for Tesla’s current Model 3 production capacity, but another piece of great news for investors that came out of the earnings is that the new production capacity that Tesla plans to deploy to bring Model 3 to 10,000 units per week is now expected to cost a lot less money.

Tesla has decreased its overall yearly capital expenditure by almost $1 billion – mostly due to them seeing a path to optimizing current production lines to achieve the 10,000 units per week target without having to deploy new Model 3 lines.

Aside from the financial outlook, several new developments announced during the conference call, like Tesla’s claim to have the ‘world’s most advanced computer for autonomous driving’ coming in an Autopilot Hardware 3.0 update next year, could be contributing to the stock price surge this morning.

What do you think? Let us know in the comment section below!

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