Tesla keeps burning cash as credit programme reaches review stage

Electric car company Tesla reported deepening losses for its second-quarter results this week, despite higher revenue and growing margins.

Tesla said the performance was the result of its decision to sink money into R&D as it continues to refine its car designs.

The company, which produces the high-profile Roadster electric sports car, said on Wednesday that net losses for the quarter totalled $38.5m (£24.3m), up from $29.5m in the prior quarter. Revenue was up more than two thirds compared to the prior quarter, reaching $28.4m, while margins grew from 19 to 22 per cent.

"Improved gross margin was offset by increased spending on research and development and our rapid global expansion," said the company, which in June became the first US auto maker to embark on an IPO since Ford listed on the stock exchange in 1956.

Tesla's stock tumbled more than five per cent on the earnings news, reaching a low of $20.06 yesterday. However, its shares are still trading at a healthy premium over the initial $17 price which was set during the firm's IPO.

The company is now racing to complete its first mainstream electric vehicle, the Model S, which is scheduled for launch in 2012 and is widely regarded as central to the firm's long-term success. Tesla recently confirmed plans to build a major manufacturing facility for the vehicle, at the same time as establishing showrooms around the world, and its stellar IPO performance is widely believed to have been the result of burgeoning investor confidence in its plans for the Model S.

However, a new challenge is emerging for the company, according to Tesla's former chief marketing officer Darryl Siry.

Writing in Wired magazine this month, Siry highlighted the fact that the company could see one of its revenue streams dwindle as rival auto manufacturers launch their own electric vehicles.

Tesla has previously exploited California's Zero-Emission Vehicle (ZEV) programme, a mechanism introduced by the California Air Resources Board that requires vehicle manufacturers producing more than 60,000 units a year to manufacture a certain percentage of zero-emission vehicles. Companies that did not meet the mandate were able to buy credits from those companies that had ZEV credits to sell, which included Tesla.

"With General Motors and Nissan delivering EVs by year's end and Toyota, Honda and Volkswagen, among others, promising them within a few years, it looks like manufacturers will have no trouble meeting what they once considered an onerous requirement," Siry wrote.

He argued that firms such as Tesla may have no one to buy their credits, removing an effective subsidy for the firm.

The ZEV programme is up for review, with regulators due to report on revisions to the initiative towards the end of the year.