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Tesla Beats the Street but Cuts Delivery Estimates for the Year (Updated)

The electric car manufacturer said its new dual motor and autopilot options added manufacturing complexity.

Reuters / Lucy Nicholson

Tesla reported better than expected third-quarter financial results on Wednesday, but lowered production estimates for the year.

Shares fell nearly $8, or more than three percent, during market hours, but climbed more than six percent in after-hours trading following the report.

The Palo Alto, Calif., company reported a net loss of $75 million, or 60 cents per share, on $852 million in revenue. But after excluding certain items like stock-based compensation and adding in some deferred revenue, Tesla posted net income of $3 million, or two cents a share, on revenue of $932 million.

On that non-GAAP basis, analysts were looking for the company to lose a penny per share on $889 million in revenue, according to the average expectations listed by the Thomson Financial Network.

But the company also cut its expectations for the full year, saying it will deliver 33,000 vehicles, between five percent and seven percent below earlier guidance. It attributed the change to “the complexity of launches related to dual motor and autopilot hardware,” referring to the new versions of the Model S announced last month.

Tesla said that it plans to reduce the number of options and powertrain combinations to simplify the manufacturing process, and that 2015 projections for around 50,000 vehicles remain unchanged.

The company also pushed back by several months the delivery date for its Model X, the forthcoming sport utility vehicle, citing plans to conduct more validating testing “to achieve the best Model X possible.” It’s now slated for the third quarter of next year.

On the other hand, Tesla said it is slightly ahead of schedule on the Gigafactory in Nevada, noting it has already begun to pour the foundation on the more than 10-million-square-foot facility. Tesla said it and partner Panasonic are “making good progress” toward producing the first round of lithium ion battery cells in 2016.

The Gigafactory is critical to the future success of Tesla, which so far has been more constrained by the supply of batteries than consumer demand. By 2020, the facility is expected to crank out enough packs to produce 500,000 automobiles a year.

On the investor call on Wednesday, Chief Executive Elon Musk expressed confidence that the facility will allow the company to achieve cost savings of 30 percent on the batteries that power its vehicles, not counting likely gains from improving technology.

“If we can’t get to 30 percent without technology improvements, someone should shoot us,” he said. “That would be in complete defiance of economies of scale and obvious cost savings.”

But it’s also a big risk for the business, requiring it to raise at least $1.6 billion and place a long bet on the battery technology of today.

The company delivered 7,785 Model S sedans during the quarter, as sales of its popular Model S sedan grew more than 40 percent from the prior year. But that’s still a long way from 500,000 a year.

“Tesla’s current stock value assumes the company will hit that number, but the reality of Tesla getting there is difficult to imagine,” said Karl Brauer, a senior analyst for Kelley Blue Book, in an emailed statement.

“If the Model X and Model III grew company sales by a factor of 10, Tesla would be selling 350,000 cars a year, which is well off Elon’s prediction while asking a lot from just two more vehicles,” he added. “No current automaker is selling half a million units a year with just three models.”

On the call, Musk continually emphasized that demand is not a problem for Tesla.

“We have more demand than we can really address, and there’s a lot of levers we could pull to increase demand,” he said.

Musk noted that half of automobile demand is for SUVs, so he’s confident the introduction of the Model X next year will be another boon for Tesla. In fact, everything it can potentially produce in 2015 is already reserved.

The company’s entry level Model 3, slated to start at $35,000, is expected to go on sale in 2017 and appeal to a whole different segment of the market.

Musk said that the company is expanding production about 50 percent each year and plans to continue to do so as far out as it “can reasonably project.”

Asked how quickly the self-driving features recently introduced for the Model S will morph into full-blown self-driving vehicles, Musk said that it will likely be seven to 10 years before both technology and policy allow for it.

“But I think it’s quite likely that Tesla will be the leader in producing cars like that,” he said.

Update: This story originally stated that shares fell in after-hours trading.

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