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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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The Efficiency Of Mining With Drones

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Can mines become more efficient – and safe – through tech? Robots, drones and virtual reality tools are now being used for sophisticated drilling operations.

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The Fight of a Bot Named Madiba

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For one of the biggest robotics competitions on earth, a team of Generation Z-ers from South Africa made their way to Mexico accompanied by a robot with the fists and fury to fight.

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MultiChoice, Africa’s Biggest TV Operator, To Be Listed By Naspers, Africa’s Largest Public Company

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Koos Bekker, billionaire and chairman of Naspers Ltd., reacts during an interview at his office in Cape Town, South Africa, on Thursday, May 7, 2015. South Africa lacks a coherent economic policy and government departments are failing to work together, said Bekker, chairman of Africa's biggest company. Photographer: Halden Krog/Bloomberg via Getty Images

 

Naspers, the emerging markets internet and media giant which is the largest public company in Africa, will list its satellite television subsidiary MultiChoice, it has announced.

MultiChoice’s DStv service is the biggest TV operation in Africa, broadcasting to some 50 countries, and was one of the first satellite companies to pioneer the then newly-minted digital broadcasting when it began in 1996.

The spun-off company will be listed on the Johannesburg Stock Exchange (JSE) and will be known as MultiChoice Group. It will include MultiChoice South Africa, MultiChoice Africa, Showmax Africa, and Irdeto. Naspers will retain its primary listing on the JSE.

“This marks a significant step for the Naspers Group as we continue our evolution into a global consumer internet company,” said Naspers CEO Bob van Dijk. “Listing MultiChoice Group via an unbundling aims to unlock value for Naspers shareholders and at the same time create an empowered, top-40 JSE-listed African entertainment company.”

MultiChoice has been part of Naspers’ Video Entertainment division, which had revenue of ZAR47.1-billion ($3.1-billion), a trading profit of R6.1-billion ($401.6-million) and added 1.5-million subscribers in the last financial year, according to Naspers figures. It “is one of the fastest growing pay-TV operators globally. Its multi-platform business entertains 13.5-million households across Africa.. and employs more than 9,000 people in Africa,” it said. A further 20,000 people are employed by its partners and suppliers on the continent.

MultiChoice offers online streaming services called ShowMax (which offers a pure-play service in Poland) and DStv Now.

“The Video Entertainment business is an African success story. This unbundling and listing is expected to deliver value to the South African economy as well as to Naspers and Phuthuma Nathi shareholders. Naspers will continue to invest in South Africa through our interest in e-commerce business such as Takealot, Mr. D Food, PayU, OLX, Property24, and AutoTrader, amongst others,” Van Dijk added.

Phuthuma Nathi is a Black Economic Empowerment (BEE) scheme in South Africa, BEE is government policy designed to redress the injustices of Apartheid. The unbundling is subject to regulatory approval in various African countries.

“Listing and unbundling MultiChoice Group is intended to create a  leading entertainment business listed on the JSE that is profitable and cash generative. WE offer an unmatched selection of local and original content, as well as a world-class sports offering. Our leadership team is diverse, experienced and well-positioned to take the company forward,” said Video Entertainment chief executive Imtiaz Patel. “There are growth opportunities for MultiChoice Group in Africa. The combination of MultiChoice’s reach, Showmax and DStv Now’s cutting-edge internet television service, alongside Irdeto’s 360-security suite will provide a unique offering. Our customer focus, international and local content, and pioneering technology places MultiChoice Group at the forefront of African digital transformation.”

Earlier this year Naspers sold a 2% stake in Tencent for nearly $10-billion to fund its internet growth and offloaded its share in Indian e-commerce business Flipkart to Walmart. In mid-2016, Naspers became the first South African company to reach the magical R1-trillion valuation.

For decades MultiChoice was the crown jewel of the Naspers stable, until its internet interest – especially Tencent – became the group’s focus. The first channel, called M-Net, was the brainchild of Koos Bekker, now Naspers chairman, who was studying for an MBA at Columbia University. At the time it launches in 1986 M-Net was one of only two pay-TV channels in the world.

Bekker told me that he had seen the success of HBO during his studies and approached Ton Vosloo, then CEO of Nationale Pers (Naspers), a large newspaper group with Afrikaans-language publications, with his idea. Vosloo was keen to find another revenue stream for Naspers which had been awarded a broadcast license by the South African government to compensate them because significant advertising revenue was being spent with the state-owned South African Broadcasting Corporation (SABC).

DStv’s first broadcast in October 1986 was the final of a provincial rugby competition, called the Currie Cup, between provinces then known as Western Province and Transvaal.

But, with massive capital investment and huge overheads, within a year it faced severe financial pressures as it struggled to attract customers.

“By Feb [19]87 our viewing audience was so pathetic we had to give make-good ads to advertisers on the basis of one-paid, two-free,” Bekker told me at the 30th anniversary of M-Net in 2016, where a holographic depiction of Trevor Noah reminisced how integral and influential the channel had been to South African culture.

“By March [19]87 our trading results were turnover of half a million Rand, loss of ZAR3,5m for the month. Since our backers were newspaper groups of small to moderate size, they couldn’t bear that sort of bleeding. We were a few weeks away from the end.”

MultiChoice’s strategic advantage was its choice of new technology (well-made decoders) and a clever change in strategy (from selling to apartment complexes and to single homes), something Bekker would prove adept at doing when he bought a one-third stake in 2000 for $30-million in a then-unknown Chinese messaging company called Tencent, whose QQ instant messaging service now has over 1-billion customers.

The decoders “sold sweetly, since we now needed to persuade only a single guy and it didn’t matter what his neighbors thought”.

M-Net “scraped through by the skin of our teeth, and by the end of [19]88 were breaking even on a monthly basis” and became profitable in 1990. It was listed a year later and Bekker took over as Naspers CEO in 1996, a decade after his big gamble on the nascent digital television market had become a roaring success.

Bekker is now one of South Africa’s best – and best-known – businessman. His gamble on Tencent has made Naspers the most valued listed company in Africa, after AB InBev bought South African Breweries. It is the most valuable media company outside of the US and China and the seventh largest internet company in the world.

Naspers growth and status, as well as its entrepreneurial culture, is because of Bekker, who also brought “equality to this business right in the beginning, thanks to Koos. He set the pace for how the public company in the new coming South Africa would have to look. No discrimination whatsoever.”

He added: “The outlook of being together and all being equal, and no discrimination, set the pace and the scene like no other public company had done up to that time. So in that sense, M-Net is the great pioneer that led us into the new South Africa.”

Vosloo repeated a mantra that has defined both Naspers’ risk taking and Bekker’s first-name leadership style: “Of course he was known as Koos, and everybody says Koos Says So.”

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