Tesla Model 3 sales surge, lifting its bottom line

On a positive note, Tesla said it generated $614 million in free cash flow. Including the $2.4 billion it raised from an offering of stock and convertible bonds in May, the company ended the quarter with $5 billion in cash.

“We believe Tesla is at the point of being self-funding,” the company’s chief executive, Elon Musk in a conference call Wednesday.

Separately, Ford Motor on Wednesday reported a $148 million profit for the second quarter, down from $1.1 billion a year ago, the latest sign of slowing auto sales around the world.

— Why did Tesla lose money?

Typically, a big jump in deliveries means a carmaker is doing well and minting money. But that was not the case for Tesla because it is spending heavily. The company is building a plant in China, which it said should begin producing the Model 3 by the end of the year. It is also developing several vehicles and making improvements to its customer service.

Its record sales in the second quarter came at a cost: Tesla pumped up demand in part by cutting prices. The most recent cut was last week, when it lowered the price of the most affordable version of its Model 3 sedan by $1,000, to $38,990.

It’s unclear how much money, if any, Tesla makes on the lower-priced versions of the Model 3. All told, the sedan made up more than 80% of the company’s deliveries in the second quarter.

“The Model 3 hasn’t reached a combination of sales volume and price that produces profits,” said Erik Gordon, a business professor at the University of Michigan who follows Tesla. Investors have to worry about whether it can reach a profitable combination, he added.

“The good news is the cash flow picture,” he said. “The company is not about to run out of cash.”

— What about the rest of the year and next year?

Tesla said that demand for its electric cars would continue to grow in the second half of the year. The company has set a goal of selling 360,000 to 400,000 cars in 2019. Sales in the first six months of the year put it less than halfway to that total, and it will have to sell 100,000 or more cars in each of the final two quarters to hit the target.

The company could find that difficult. On July 1, the federal tax credit available to Tesla’s customers in the United States will fall by half to $1,875. On Jan. 1, the tax credit will go away entirely.

For this year at least, Tesla cannot count on any new models to attract customers and drive sales higher. It is working on the Model Y, an SUV that shares a lot of parts with the Model 3 but will come with up to three rows of seating, rather than the Model 3’s two rows.

But that car is not scheduled to go into production until late in 2020. Tesla is also working on a pickup truck and a semi truck, but they are not expected to arrive until after the Model Y.

Musk said Tesla expected to be “about break even” in the third quarter and profitable in the fourth quarter. The company also lowered its outlook for capital expenditures this year, to a range of $1.5 billion to $2 billion, from an earlier estimate of $2 billion to $2.5 billion. The company said it was becoming more efficient and was putting off some spending.