The Supply Chain Matters blog provides comments related to this week’s announcement of Tesla Motors Q2 financial performance.
Tesla Motors reported financial performance for the company’s second quarter with analysts and investors not pleased with the results. This morning’s business headline was that Tesla’s stock was being slammed and headed for its worst performance in almost six years. 
Coming off a record total production operational performance in Q2, the electric automaker reported a larger-than expected $167 million operating loss, a declining automotive gross margin with indications of not being able to have a profitable quarter until Q4. Production ramp-up is obviously taking an additional financial toll, despite recent overall headcount reductions. Automotive gross margin fell 0.3 percentage points to 18.9 percent. Quarterly revenue was reported as $6.35 billion, a 60 percent year-on-year increase.
With the help of a recent offering of equity and convertible bonds that netted $2.4 billion, Tesla was able to end the quarter with $5 billion in cash and cash equivalents. That is important given the company’s prior working capital challenges. None the less, the current quarter is expected not to break-even with expenses. Added to working capital drain is the planned launch of Model 3 production in China and the new Model Y in Fremont by the fall of 2020.
CEO Elon Musk reiterated prior guidance that the auto maker would deliver 360,000 to 400,000 vehicles in 2019. As noted in prior Supply Chain Matters commentaries, Tesla’s vehicle delivery forecast has lost creditability, and the 2019 output goal remains dauting. Current Model 3 production remains augmented by an assembly line housed in a tent in the company’s campus parking lot. A recent business network CNBC report points to employees indicating the need to take shortcuts to achieve existing production numbers including reducing process checks or having to use electrical tape to repair plastic parts.
In his Q2 Update Letter to Tesla investors, CEO Musk stressed the progress being made on construction and outfitting of the Gigafactory Shanghai which is expected to augment manufacturing capacity to upwards of 150,000 vehicles per year and include the second generation of Model 3 production processes, including a base level of the vehicle. Depending on timing of the ramp-up of the Shanghai facility, Tesla is targeting production of over half a million vehicles globally by June 30, 2020. Once again that is a tall order.
Additional Executive Departure
This week also included news of the departure of the company’s chief technology officer, JB Straubel, who was among the original founding executive team. Straubel, who reportedly will take on an advisory role, had served as the CTO since 2005. His responsibilities will be taken over by Drew Baglino, another legacy executive. This news added to the building list of executives that have recently departed the electric automaker. The company’s long-time CFO departed in January of this year, while former engineering head Doug Field departed in 2018. In its reporting, The Wall Street Journal, citing an informed source, indicated that: “Mr. Straubel made the decision to step down as the company is maturing into a phase that needs more operational focus while he seems happiest working on new projects.”
Supply Chain Matters Perspective
The investor and market looking glass on Tesla Motors remains on achieving sustainable production volume and profitability. While Tesla’s automobile technology is lauded by owners, the company remains challenged with consistency and excellence in operations management involving supply chain, production and customer services. Headcount cutbacks and senior executive turnover have not helped, as is the continued lack of creditability to overly optimistic production volumes that stretch all existing resources to their limits.
Bob Ferrari
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