Tesla shares surge as Model S orders regain speed

FILE PHOTO: Tesla Motors' mass-market Model 3 electric cars are seen in this handout picture from Tesla Motors on March 31, 2016. Tesla Motors/Handout via REUTERS/File Photo ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. NO ARCHIVES, NO SALES.

Tesla Motors' Model 3 electric cars

Tesla says it has bounced back from the recent dip in orders for its Model S, easing investors’ worries that its new Model 3 would cannibalise the more expensive sedan as the company embarks on its long-awaited attempt to break into the mass market.

The US electric carmaker’s shares jumped by nearly 8 per cent in after-market trading on Wednesday after Elon Musk, chief executive, called July “one of the best months ever” for the S, which is now into its sixth year.

He also revealed full details for the first time of demand for the Model 3, with 455,000 reservations for the vehicle. Preliminary orders on a further 68,000 cars — secured only with a $1,000 refundable deposit — had been cancelled. But Mr Musk suggested this gave little indication of potential demand because customers had not yet seen the vehicle, and Tesla had not made any attempt to market it given the long delays before it can meet existing orders.

The news came as the carmaker reported revenues of $2.79bn for the second quarter, ahead of most analysts’ forecasts, despite a shortfall in vehicle deliveries that it reported last month. Its pro-forma net loss for the period, at $1.33, also topped expectations, thanks largely to higher sales of zero-emission credits.

Last week’s release of the first 30 Model 3s, all of them to customers who are also Tesla employees, was a milestone for the company in its attempt to create the first mass-market electric car. But plans for a rapid increase in production to 500,000 by the end of next year have also strained its production system and finances.

Mr Musk on Wednesday said he still believed Tesla would not need to raise additional equity. Second-quarter figures showed the company had used up about $1bn of its cash reserves in the latest three months, most of it on equipping its factory to build the Model 3, leaving it with “slightly over $3bn”. The company also said it expected capital spending of $2bn in the second half of 2017, $500m higher than the first six months of the year.

Tesla is counting on the Model 3 generating positive cash flow by the end of this year to ease pressure on its finances. Mr Musk added that it might also add to its debt to build a cushion against natural disasters or other unforeseen events.

The chief executive took the blame three months ago for what he said was customer confusion ahead of the Model 3, with many potential Model S customers mistakenly believing it was a new version of the S and holding off placing orders. But on Wednesday, he said weekly orders for the S during July were 15 per cent higher than the quarterly average, and had continued to increase since the first Model 3s were handed over at the end of last week.

Tesla had already disclosed that deliveries in the latest quarter fell short of expectations, leaving the first-half total of 47,100 near the bottom of its 47,000-50,000 range.

It blamed the shortfall on production problems tied to its new, larger 100 kWh battery, though it said these had been resolved by early June. The latest delivery numbers, combined with a cautious prediction that the second half would see an improvement on the first “provided global economic conditions do not worsen considerably”, left some analysts questioning whether the company had hit a ceiling in demand for its S and X models.

Wall Street had been expecting Tesla to report a loss of $1.80 a share on revenue of $2.55bn for its latest quarter.

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