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Companies

Tesla says Shanghai plant will boost efficiency after huge loss

Carmaker pins hopes on China production, expected to begin at year-end

Tesla expects its Chinese production line will be "at least 50% cheaper per unit of capacity."   © Reuters

PALO ALTO, U.S. -- Tesla reported a wider-than-expected $702 million quarterly loss on Wednesday, one of its worst results to date, as the electric car company struggled with deliveries of its mainstay Model 3 due to logistical bottlenecks.

In a conference call, senior management said improving cost efficiency should allow a return to profit in the third quarter of 2019. A new plant in Shanghai, expected to begin mass production at the end of this year, promises to provide a further boost.

"We can now build a second-generation Model 3 line in China that we expect will be at least 50% cheaper per unit of capacity" than the existing Model 3 production lines, the company said in its first-quarter earnings report. Tesla builds batteries with partner Panasonic at its Gigafactory 1 in Nevada, and assembles the cars in Fremont, California.

Its new plant in China, Gigafactory Shanghai, remains a capital-intensive investment for Tesla, but the company is bullish about the fruits of the project. The factory is expected to help the company hit its 500,000-unit annual production goal and contribute to improving production efficiency globally.

The company added that Gigafactory Shanghai, which will produce both cars and battery cells, will be almost fully funded through money borrowed from local Chinese banks.

The Nikkei Asian Review previously reported that Tesla and Panasonic have suspended plans to expand capacity at the Gigafactory 1 in Nevada. Tesla CEO Elon Musk did not address the Nevada suspension in Wednesday's earnings call but said his company plans to soon "scale up" the Gigafactory 2 in Buffalo, New York.

Musk also said that Tesla may soon roll out an insurance product for Tesla car owners, as early as next month. There have been several incidents in which Tesla vehicles have caught fire -- the latest one in Shanghai last weekend -- and owners have been complaining about the difficulty of receiving compensation from insurance companies in such accidents.

Investors and analysts have been paying close attention to demand for Tesla's Model 3 outside the U.S., especially in China and Europe, since overseas deliveries of began in the past quarter.

The company produced roughly 63,000 Model 3 vehicles in the first quarter, with more than half the sales coming outside the U.S., according to the earnings report. Tesla expects to deliver 90,000 to 100,000 vehicles in the second quarter and reaffirmed prior guidance of 360,000 to 400,000 deliveries in 2019.

On Monday, Musk hosted an investors day to provide more details about the status and plans for its autonomous vehicle technology. Musk discussed a plan to put more than 1 million robot taxis with fully driverless capabilities on the road by 2020.

The Palo Alto, California-based company posted an adjusted loss per share of $2.90 for its fiscal first quarter, which is wider than analysts' consensus forecast of a $1.15 per share loss, according to a FactSet survey on Tuesday.

The company ended the quarter with $2.2 billion of cash and cash equivalents, a $1.5 billion reduction from the end of 2018 after a $920 million convertible bond repayment last month. The company has $180 million in debt maturing in April, but Tesla said it has no immediate plan to raise capital.

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