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Tesla gets richer despite looming production challenge

The first 30 Tesla Model 3 cars being handed over to employee buyers at the company’s Fremont facility in California on Friday. (Tesla/Reuters)

Tesla reported quarterly earnings Wednesday that beat analyst expectations, giving the company even more momentum as it begins a period of unprecedented production.

The news arrived less than a week after Tesla unveiled the Model 3 at its factory in Fremont, Calif. Touted as the company’s first “mass-market” vehicle, the Model 3 received rave reviews from car and tech experts.

In its earnings letter, Tesla referred to the rollout as “a huge milestone” and said it coincided with increased orders for the Model S and Model X.

Analysts had wondered whether a steady stream of news reports about Tesla’s production challenges would put a dent in the company’s earnings, but the company’s numbers surprised observers Wednesday.

“One of our big concerns was that Model S and X demand would suffer with introduction of the 3,” the company’s chief executive, Elon Musk, said during an earnings call later Wednesday. “In fact, this has turned out to be the opposite situation — Model S and X increased.”

“It has turned out to be a pleasant surprise,” he added.

The quarterly earnings  report revealed an adjusted loss per share of $1.33, compared with the $1.82 that had been expected, according to Thomson Reuters. Revenue was $2.79 billion, compared with the expected $2.51 billion.

The automakers’s latest earnings report wasn’t all positive news. The company’s net loss increased to $336.4 million for the second quarter — more than $43 million higher than the same time a year earlier.

Until Friday, when the first 30 Model 3s were sold to company employees, Tesla had released few details about its newest vehicle and its pricing structure — intended to lower the entry barrier into the company’s luxury niche.

But Musk was more specific Friday night, when the company made its first deliveries of the new car in front of several hundred company workers and journalists at the factory in Fremont.

Musk spent the next 30 minutes discussing his vision for Tesla over the next year and beyond.

I spent three minutes inside Tesla’s Model 3 — and I’m still thinking about it a day later

The newest-model Tesla has a starting price of $35,000, compared with the company’s Model S, which starts at $68,000, and the Model X, which starts at $82,500.

Musk said Model 3 net orders have reached a rate of about 1,800 a day. He said production would slow gradually before climbing rapidly to 20,000 vehicles per month by the end of 2017 and about 50,000 a month by the end of next year.

It’s a steep increase in production. Making 500,000 vehicles in a year, as Tesla has vowed to do, would mean increasing its 2016 production almost sixfold, according to Reuters.

The company reiterated Wednesday that Model 3 production would reach Musk’s previously outlined benchmarks.

Musk said that Tesla has an “incredibly difficult production ramp” ahead but that he remains confident the company can reach its ambitious production targets.

“People should really not have any concerns that we will reach that outcome from a production rate,” he said. “We’re also very confident about costs.”

Here’s what we know about Tesla’s Model 3

The earnings letter noted that orders for Model S and Model X have been increasing in the days around the Model 3 handover event. “In July, our weekly net order rate for these vehicles was about 15% higher than our Q2 average weekly order rate,” the letter said.

“This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of this year,” the letter added.

Musk said that in Tesla’s 14-year history he’s never felt better about the company. Offering evidence that he isn’t the only one excited about the company, he cited an unlikely metric: news articles following the Model 3 launch.

“The journalists were doing test rides, and about 80 percent said they’d buy the car themselves,” he said, noting that the remaining 20 percent said they “probably” would.

“This is crazy,” he added. “I’ve never seen anything like it.”

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