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Tesla Lost $293 Million In Q2 2016 After 'Production Hell'

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One of the main questions surrounding Tesla is its ability to ramp up production to satisfy the almost 400,000 existing Model 3 orders, and the hundreds of thousands of orders that are supposed to follow. Past isn’t necessarily indicative of the future, but on Tesla’s earnings call just now things didn’t sound all roses.

The company ended up losing $293 million last quarter on a GAAP (Generally Accepted Accounting Principles) basis, and $150 million on a non-GAAP basis, which takes into account things like leases that GAAP generally doesn’t adjust for. And while the company took in $150 million in cash flow from operations on a GAAP basis – partially based on Model 3 order deposits – it spent $295 million on customer service, increasing production capacity, and the Gigafactory. Tesla says it’s on track to deliver 50,000 Model S and Model X cars in the second half of the year.


But Tesla can go on and on about how it will make batteries for 500,000 cars a year at its Gigafactory, but before it can do that it has to prove it can make actual cars. It had problems with the Model S when production first started, and now, with the Model X, things don’t sound any easier. There were problems with the seats, there were problems with the doors, there were problems with a bunch of things.


On Tesla’s second quarter earnings call just now, CEO Elon Musk went so far as to say that the company went through “production hell” the first six months of the year, and entailed “a lot of hurt.”

Of course, everything is definitely, 100 percent, completely all better now. Production is proceeding smoothly.

Our sarcastic snark aside, Musk said that the reason for all the production problems basically boils down to the notion that Tesla tends to make cars differently from other companies, and thus, it still has to “build the machine that makes the machines.” And that’s true! The Model X contains multitudes of weirdness, like its monopost seats and snazzy falcon-wing doors.

But if you listen to Musk talking about the company lately, he actually sounds less excited about Tesla vehicles coming down the pipe than he does about manufacturing efficiency. So much so that the company refers to the issue as the “alien dreadnought” issue internally.


“Alien dreadnought” is a weird as hell way to refer to a manufacturing issue, but the reasoning behind it is that if Elon had his way, in an ideal world the interior of one of his factories would resemble a massive extraterrestrial ship.

Either that, or, as he puts it, “a super high speed canning plant.” The idea being here that a Tesla factory of the future will have to be extremely highly automated to keep pace, with virtually no workers on the production line, since putting humans on the line inevitably slows the line down to human working pace. The only humans in the factory, then, exist to maintain, upgrade, and fix the super-speed machines.


“At the point of time that the factory looks like an alien dreadnought, you’ve won,” Musk said.

(As an aside, if you ever get a chance to speak with Elon Musk, he’ll go on about this sort of thing for hours. When I visited the Gigafactory he rambled on for a while about actual space efficiency inside buildings, and that an ideal Tesla factory would have space efficiency of 20 to 30 percent (100 percent being a building that is packed completely solid), which means it’d be a hell of a lot more crowded than almost any modern factory I can think of. Not a lot of breathing room, is all.)


All of this is, of course, very pie-in-the-sky. And it might be a cloud on the horizon for getting all of those Model 3 orders out the door. Or, OR, it could be nothing. Either one. Maybe they have solved production issues. We won’t really know for a while.

As for the rest of the call, the company lost more money than expected, which is weirdly enough not actually unexpected these days, and the company is “clearly disappointed” with its sales numbers. And banks aren’t really willing to lend the company too much money anymore, with the company saying in its earnings letter that “we have reached our funding limit with a banking partner,” though that can be mitigated by stock sales and whatnot.


And the company is still incredibly vague about when it expects to achieve profitability, as they seem to be hinting that they want to just keep putting money into research and development instead of letting it accumulate. But it does aim to have the Model S and X lines profitable by the end of the year.

Maybe. Hopefully.

Anyways, just keep believing in the dream. It might work! Or it might not!

(I don’t really care I’m not invested or short on Tesla shares, is what I’m saying. It’s your money, do what you want with it.)