S3X sells – but is it causing trouble for Tesla?

Tesla shares took a quick dip overnight after it was revealed that the US electric vehicle and battery maker had posted yet another quarterly loss – this time bigger than expected at $US397.2 million, or $US2.04 per share for Q1 2017, compared to a loss of $US219.5 million in Q416.

The loss came despite increased first-quarter revenue – up 18.4 per cent from the previous quarter, to $US2.7 billion and double what it was a year earlier – and a 12 per cent increase in car deliveries to 25,051.

And of course, Musk was upbeat, telling reporters and analysts via conference call he felt “quite optimistic about the future.”

On that note, he talked briefly about the  Model Y – an “aspirational” vehicle about which Tesla has said little. But on Wednesday, Musk said the Model Y would come in “sometime in 2020 or … sometime in 2019,” and would be built on a different platform to the Model 3, taking advantage of new technologies.

On the Model 3, Musk said “vehicle development is nearly complete as we approach the start of production… Preparations at our production facilities are on track to support the ramp of Model 3 production to 5,000 vehicles per week at some point in 2017, and to 10,000 vehicles per week at some point in 2018,” he said in his letter to shareholders.

But according to reports, some interesting and perhaps unforeseen complications of the impending – and on-schedule – delivery of the company’s mass-market Model 3 seem to be playing on Musk’s mind.

LA Times reports that Musk spent much of the day’s conference call “fretting” about confusion over the name of the Model 3, which was specifically chosen to mark the mid-point between the S and the X. That is, S3X – or S3XY if the Model Y comes about. (Actually, it was supposed to be a Model E for that reason, but that name was taken, and so the backwards E – 3 – was settled upon.)

“The joke’s on me because it’s caused confusion in the marketplace,” Musk said in the conference call. “We’re going to be a broken record on this front because we have to clear up an error.”

In fact, Musk believes this “error” has caused a dint in Model S orders, because some customers think the 3 is a new version of the S, so they’re holding off on Model S purchases.

“It’s a bit confusing because one is a letter and one is a number,” he said.

As Reuters reports, Tesla has a great deal riding on the Model 3, which – among other things – could finally make the company profitable.

“But …(it) is anxious that the $35,000 Model 3 – which will likely not be delivered in volume until 2018 – avoids cannibalising the higher-margin Model S, which lists at about double the starting price,” Reuters said.

A further concern, however, revolves around that volume. While many are sceptical that Musk can fulfill his promise of producing 500,000 cars in 2018, or six times Tesla’s 2016 production, others are worried that the rest of the business will not be able to keep up.

As Elektrek reports, many Tesla owners have been worried that the Model 3, which will represent a few hundred percent increase in sales for Tesla, will result in overcrowded service centers and possibly even longer wait times for service.

Hence, a big part of Wednesday’s Q1 results announcement was spent taking about Tesla’s addition of “nearly 100” sales, delivery and service locations globally over the next 12 months – a 30 per cent increase on their current footprint.

The company also plans to open its own “body shops”, for out of warranty car repairs, and to add 100 Tesla Mobile Service repair trucks that can service cars at customer homes and businesses.

But there is still some room for worry, says Elektrek: “An increase in 30 per cent in locations and 35 per cent in efficiency are both significant, but when sales are already increasing at 50-60 per cent per year and are poised to increase by at least another 250 per cent next year, it seems there’s a chance that Tesla will continue to play catch-up with the massive demand for their products.”

On a positive note, MarketWatch reminds us that shares of Tesla have risen this year by 50 per cent, pushing its market value higher than both GM and Ford, the two largest US auto makers by sales.

“We don’t think earnings matters,” Brian Johnson, an analyst with Barclays, advised clients in a note Wednesday ahead of Tesla reporting. “…The stock seems so disconnected from any form of fundamentals, and right now is purely driven by momentum — making earnings less relevant.”

And then there’s the view of hedge fund manager and Tesla sceptic (and long-time GM investor) David Einhorn: “For the time being, investors remain hypnotized by Tesla’s CEO.”