Please ensure Javascript is enabled for purposes of website accessibility

Tesla Inc.'s Q1 Loss Widens Amid Model 3 Production Ramp-Up

By Daniel Sparks - May 3, 2018 at 10:36AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With over $1 billion of negative free cash flow, investors are watching Tesla's Model 3 production ramp-up closely.

After reporting its worst-ever quarter loss in the fourth quarter of 2017, electric-car company Tesla (TSLA -0.32%) was under pressure going into its first quarter. Investors expected another big loss and were hoping the automaker's ramp-up of its important Model 3 was on track. Sure enough, this is how things played out. Model 3 production jumped, but Tesla still managed to report a net loss of $710 million.

Looking ahead, of course, Tesla investors are hoping Model 3 production can increase to a level that supports profitable sales volume. But this remains nothing more than an optimistic forecast for now.

Tesla Model 3 interior.

Model 3. Image source: Tesla.

Here's a look at the most important takeaways from Tesla's first quarter.

First-quarter results: The raw numbers


Q1 2018

Q1 2017


Vehicle deliveries





$3.4 billion

$2.7 billion










Data source: Tesla first-quarter shareholder letter. Table by author.

Tesla's first-quarter revenue increased 26% year over year, driven primarily by Model 3 deliveries and higher energy storage sales. 

First-quarter vehicle deliveries increased 20% year over year to 29,997. Of these deliveries, 21,815 were Model S and X vehicles and 8,182 were Model 3. Since Tesla didn't start delivering Model 3 until the second half of 2017, Model 3 accounted for all of Tesla's year-over-year growth in vehicle deliveries.

Tesla's wider loss per share compared to the year-ago quarter was driven primarily by a lower automotive gross profit margin. Its automotive gross margin in its first quarter of 2018 was 19.7%, down from 27.4% in the year-ago quarter. This was because Model 3's gross margin remained negative during the quarter "due to temporary underutilization of our manufacturing capacity." In other words, Tesla needs Model 3 production to increase significantly before per-unit costs come down to reasonable levels.

First-quarter highlights

  • Tesla's GAAP and non-GAAP automotive gross profit margins increased 80 and 500 basis points sequentially, respectively.
  • Model 3 reservations, including configured orders that are not delivered yet, continued to exceed 450,000 by the end of the quarter.
  • Model 3 was on display in less than 20 stores.
  • Orders for Model S and X vehicles were at an all-time first-quarter high.
  • Tesla's energy generation and storage revenue increased 38% sequentially and 92% year over year, primarily driven by higher energy storage deployments.
  • Before temporarily shutting down its factory for upgrades, weekly Model 3 production exceeded 2,000 units for three weeks straight. This is up from 1,542 total Model 3 deliveries during the company's entire fourth quarter of 2017.
  • Tesla's free cash flow was negative $1.05 billion, highlighting the company's need for its Model 3 production ramp-up to go smoothly.

Looking ahead

Tesla maintained its guidance to achieve a weekly production rate for Model 3 of 5,000 units per week in "about two months." But management warned that "prior experience has demonstrated the difficulty of accurately forecasting specific production rates at specific points in time because of the exponential nature of the ramp."

Importantly, Tesla said it expects its gross profit to grow at a much more rapid rate than its non-GAAP operating expenses in the coming quarters, positioning Tesla to "at least be profitable in Q3 and Q4 excluding non-cash stock based compensation," management said. But Tesla also said it ultimately expects to achieve GAAP profitability in both of these quarters, too. To do this, however, Tesla will need to hit its target Model 3 production rate of 5,000 units per week in about two months.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$734.76 (-0.32%) $-2.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.