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Tesla’s $675 Million Loss Pulls Elon Musk Back To Earth After Stellar SpaceX Launch

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Elon Musk wowed millions of people who watched the livestream of a flawless first launch of SpaceX’s Falcon Heavy rocket, which carried a Tesla roadster into space, capped by the elegant, simultaneous landing of two boosters. Musk’s euphoria was undiminished as he shifted gears on Wednesday to Tesla, pointing to a silver lining for the high-flying carmaker that capped a year of big losses and production headaches for its critical Model 3 sedan.

The company reported a whopping $675.4 million net loss for the final quarter of 2017 and a $1.96 billion deficit for the year, the most ever on both counts. Loss per share was $4.01 on a GAAP basis, or $3.04 per share excluding some items. That was better than consensus estimates for adjusted EPS losses of $3.10 to $3.19, and likely the result of bigger than expected sales of emissions credits. Tesla shares plunged 8.6% to $315.23 on Thursday.

Musk and Tesla CFO Deepak Ahuja acknowledged 2017’s challenges in a letter to investors but also said the table was set for a much better year in 2018. Notably, they predict operating income will become “sustainably positive” at some point this year and that production of Model 3, as well as the S and X crossover, will continue to grow.

“2018 will be a transformative year for Tesla, with a high level of operational scaling,” the two said. “As we ramp production of both Model 3 and our energy products while keeping tight control of operating expenses, our quarterly operating income should turn sustainably positive at some point in 2018.”

The company stuck with its production guidance for the Model 3, nominally priced from $35,000, to reach 2,500 units a week by the end of the first quarter, and then 5,000 a week at the end of the second quarter. The Palo Alto, California-based company didn’t say when it will hit its ultimate target of 10,000 Model 3s a week, enough to hit Musk’s goal of 500,000 a year.

“Even this Tesla realist and Model 3 deposit holder has doubts about Tesla ramping up to 10,000 units/week, essentially promising production levels of over 250,000 units in 2018,” said Rebecca Lindland, executive analyst at Kelley Blue Book’s KBB.com. “I think they’ll be lucky to get 150,000 units out the door in 2018, and even that would be an incredibly impressive feat, requiring an average weekly rate of over 3,000 units for every single week left in 2018 with no breaks. Elon Musk needs a team of forecasters that he’ll listen to so he can finally provide Wall Street and depositors with achievable targets.”

READ MORE: Roadblock: Elon Musk’s Net Worth Drops $800 Million In A Day

Last month, Tesla cut its Model 3 production target for a second time after building just 2,425 in the fourth quarter. Total production, including the higher-priced Model S and Model X, was 101,027 units in 2017.

Still, the fact that the company affirmed its production goals, which were revised down in January, was the best news in the report, said Jeff Reeves, analyst and executive editor of InvestorPlace.com.

“There are never any guarantees, but Elon Musk hasn’t been shy about cutting back forecasts in recent months so he certainly would have pulled back on the reins if Tesla wasn’t confident,” Reeves told Forbes. The company also managed to burn far less cash in the fourth quarter, trimming it to $276.8 million in the quarter, compared with $1.42 billion in the third quarter and $969.8 million a year ago, he said.

“It’s always about growth with Tesla, not the bottom line,” Reeves said. “But it’s also encouraging to see a smaller-than-expected loss and a cash burn that dropped significantly from Q3 to Q4.”

Tesla’s sales of zero-emission vehicle, or ZEV, credits to other automakers that need them to comply with California’s tough emissions rules, were up significantly from a year earlier, to $179 million compared with $20 million in the final quarter of 2016. Barclays analyst Brian Johnson predicted $10 million for the quarter. Exceeding the forecast provided Tesla an adjusted net loss that was slightly better than expected.

Tesla completed the integration of SolarCity into its operations in 2017 and aims to significantly boost shipments of solar panels and power storage units this year.

“We expect energy storage products to experience significant growth, with our aim to at least triple our sales this year,” Musk and Ahuja said. “We expect energy generation and storage gross margin to improve significantly in 2018 as we enter the year with a backlog of higher-margin commercial solar projects and a more profitable energy storage business due to manufacturing efficiencies from scaling.”

READ MORE: Musk’s Multi-Billion-Dollar Tesla Comp Plan Is Shrewd Marketing Amid Rocky Patch

Capital expenditures will continue to rise in 2018, to expand output at the Gigafactory battery plant in Nevada and continued investment in production capacity at Tesla’s Fremont, California, plant, the company said. Tesla will also start investing this year to add production of the Model Y, a small electric crossover that will be the next vehicle in its lineup.

“We are going, as you suspect, to need to make some capital investments in the second half of this year, in late Q3, Q4, for Model Y. We want to wait probably three to six months before announcing any definitive plans on production location or details associated with that,” Musk said in a conference call with analysts.

His expectations for Model Y, which hasn’t yet been unveiled, are enormous.

“To give you some flavor for optimism for Model Y… we might aim for something like maybe capacity of a million units a year, just for Model Y alone. I think we’ll be able to do that for capex that is less than Model 3 capex at the half-million-unit level”, Musk said.

Notably, customer deposits for Model 3, as well as the recently announced Semi and Roadster became a major balance sheet item for Tesla, totaling $858 million at the end of 2017, up from $663 million a year earlier. While most of those funds are from the nearly half-million reservations Tesla has for the Model 3, a growing portion comes from the battery-powered Class 8 truck and high-end sports car.

Separately, Musk said that Jon McNeill, who had been head of the company’s sales and service group, had left the company. Musk said he’ll oversee those functions himself. Lyft said it hired McNeil as its chief operating officer.

“Jon is a world-class leader who brings deep experience as a highly successful entrepreneur and executive,” Lyft CEO Logan Green said in an emailed statement. “Last year, the Lyft community experienced more growth than in all previous years combined, growing rides by 2.3x and increasing market share by more than 50%. Jon is the right leader to build upon this momentum with his unique background of starting companies from scratch and managing at scale.” – Written by 

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Apple Is Donating 9 Million Masks To Combat The Coronavirus

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Topline: Apple will donate 9 million N95 protective masks to combat the coronavirus, Vice President Mike Pence said on Tuesday, making Apple one of several California tech companies pitching in as hospitals across the country report a shortage of protective gear.

  • Pence thanked Apple for agreeing to donate 9 million N95 respirator masks to healthcare facilities across the country during a press briefing on Tuesday.
  • Pence’s remarks come after Apple CEO Tim Cook tweeted over the weekend the company was “working to help source supplies for healthcare providers fighting COVID-19” and “donating millions of masks for health professionals in the US and Europe,” but did not offer more specifics.
  • N95 respirators are masks that form a protective seal around a wearer’s mouth, filtering  out at least 95% of particles in the air, according to the Centers for Disease Control, which makes them necessary to protect healthcare workers from being exposed to the disease from patients.
  • Facebook has also said it is donating its stockpile of 720,000 masks purchased during the California wildfires last year, which degraded the air quality in the San Francisco Bay Area.
  • Apple did not immediately respond to a request for comment from Forbes asking if all of the donated masks were stockpiled because of the wildfires or if the company got them from somewhere else.

Chief critic: Teddy Schleifer, a reporter at Recode, wrote that health systems shouldn’t rely on the generosity of big tech companies to make up for the failures of the federal government. 

“But there is a risk in relying on corporate philanthropy—rather than the government—in solving this problem. For starters, it depends on the voluntary generosity of these companies to deal with an unprecedented emergency, an altruism that could vanish at any time,” he wrote.

Crucial quote: “And I spoke today, and the president spoke last week, with Tim Cook of Apple. And at this moment in time Apple went to their store houses and is donating 9 million N95 masks to healthcare facilities all across the country and to the national stockpile,” Pence said.

Key background: Apple is one of several California tech companies to give away N95 masks. In addition to Facebook, Salesforce, Tesla and IBM have also announced mask donations.

News peg: Doctors and nurses are sounding the alarm that they don’t have enough masks to protect healthcare workers. Not only does inadequate protective gear put important frontline health workers at risk, public health experts say, any situation endangering medical personnel may only further depletes the U.S. health system which already doesn’t have enough capacity to handle a surge in cases. State officials in New York and Illinois have criticized President Donald Trump for not stepping in to force companies to manufacture masks or allocate masks from private companies to ensure that states don’t outbid each other for the same supplies.

Rachel Sandler, Forbes Staff, Breaking News

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Video Games Are Being Played At Record Levels As The Coronavirus Keeps People Indoors

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Topline: With school closures, mandatory work-from-home policies and lockdowns taking place in the U.S. as a result of the Covid-19 coronavirus pandemic, gaming has seen higher engagement, especially over this past weekend.

  • Steam, the most popular digital PC gaming marketplace, reached new heights Sunday, drawing a record 20,313,451 concurrent users to the 16-year-old service, according to third-party database SteamDB.
  • Counter-Strike: Global Offensive, released by Steam-owner Valve in 2012, seems to be the top beneficiary of the increased engagement, breaking it’s all-time peak on Sunday with 1,023,2290 concurrent players, topping its previous peak last month by a million, which itself beat the record set in April 2016.
  • Like other esports, CS:GO has had to cancel events due to the virus, particularly the Intel Extreme Masters in Katowice earlier this month, though its peak viewership reached over a million, making it one of the most watched tournaments in the esports’ history.
  • Activision Blizzard’s new free-to-play battle royale spinoff Call of Duty: Warzone, launched March 10 on PC, Xbox One and PlayStation 4, is also likely benefiting, drawing in a staggering 15 million in three days, besting the record 10 million in three days by last year’s battle royale sensation Apex Legends.
  • These new heights follows similar effects of the virus on China and Italy: Telecom Italia’s CEO told Bloomberg it saw a 70% increase in traffic over its landline network, with Fortnite playing a significant part, while Chinese live-streaming service Douyu experienced increased viewership of the country’s most popular games, according to market analyst Niko Partners.
  • While gaming was considered “recession proof” during the 2008 market crash, stocks aren’t immune to the current historic drops: software developers like Activision Blizzard are facing a 9% decrease in price year-to-date, while hardware companies that rely on Chinese manufacturing like Nintendo are seeing bigger drops of 24%.

What To Watch For: If these records keep rising as the closings and lockdowns continue. Arriving this week is Nintendo’s long-awaited Animal Crossing: New Horizons for the Switch console, a relaxing “life-simulator” that’s set to have a big day with many fans not-so-jokingly asking Nintendo to launch early.

Surprising Fact: Plague Inc., a game that tasks players in creating a virus that wipes out humanity, surged in popularity late January, becoming the top-paid game on the Chinese app store at one point, but the game has now been removed in China at the direction of the government.

Further Reading: So You’re Suddenly Working From Home And Want To Try Gaming? Here’s How To Get Started.

Matt Perez, Forbes Staff, Innovation


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Amazon Hoping To Hire 100,000 New Employees To Deal With Coronavirus Demand

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Topline: Amazon announced Monday that it would be opening 100,000 new full-time and part-time positions to deal with increased buying demand as people practice social distancing during the Covid-19 coronavirus pandemic.

  • The company will also increase pay by $2 in the U.S. from its current $15 an hour, £2 in the UK and €2 in Europe for those working in fulfillment centers, transportation services, stores or people making deliveries, amounting to a total of $350 million.
  • Amazon last Friday shared that the increase in online commerce has unsurprisingly resulted in shortages for household essentials and delays in shipment times.
  • Monday’s statement also noted that “We continue to consult with medical and health experts, and take all recommended precautions in our buildings and stores to keep people healthy. We’ve taken measures to promote social distancing in the workplace and taken on enhanced and frequent cleaning, to name just a few.”
  • Last week, Amazon told all of its employees to consider working from home if they could, according to CNBC; for its fulfillment centers and delivery services, it also launched a $25 million relief fund that lets workers diagnosed with the coronavirus apply for  grants equal to two weeks pay, as well as unlimited unpaid time off for all hourly employees until the end of March.
  • Amazon currently employs 250,000 people at 110 fulfillment centers.

News Peg: According to Johns Hopkins, 181,200 people have been infected with the coronavirus, with 7,115 deaths reported. School closures, lockdowns and curfews have been put in place to promote social distancing, with the White House today recommending to avoid groups of more than 10 people.

Matt Perez, Forbes Staff, Games

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