Tesla Disappoints on Outlook, Shares Fall

Tesla Motors Inc led by Elon Musk the billionaire offered on Wednesday an outlook for its second quarter, which disappointed investors. In response, shares for the company dropped as much as 7% in trading after hours.

The electric carmaker posted first quarter profit that was higher than had been expected. The company said operating gross margins in the ongoing quarter would be up slightly.

One analyst called Tesla’s outlook disappointing and said investors were hoping for better numbers.

The electric carmaker, based in Palo Alto, California reported a net loss in the first quarter of nearly $50 million, in comparison to its first quarter with a profit during the same period one year ago.

Tesla announced it is spending as much as $850 million in 2014 to increase its production capacity of its luxury electric sedan the Model S, to develop the crossover Model X and to start the construction of a new plant for the lithium-ion battery, which has been given the nickname “gigafactory.”

It said the investment in the company would leave the business with a 2014 negative free cash flow.

Like other momentum stocks, shares of Tesla have dropped recently and as of the close of business Wednesday the stock was down over 20% from its mid-February all time high of $265.

Shares for Tesla on Wednesday during trading after hours were at $186.60 after ending regular trading at $201.35.

Tesla said the project for starting the production of its lithium-ion battery at the new plant would be completed in 2017 and the factory should be at full production during 2020.

The plant’s location has not been chosen, but the company did say it would be in either Arizona, New Mexico, Nevada or Texas and Musk announced on Wednesday that now California was also a possibility, but still more improbable than others given that the state has an environment that is more regulatory.

Tesla said last February that it was planning to raise as much as $1.6 billion through convertible notes to help with the factory financing. Analysts said it would need an infusion of capital of between $5 billion and $6 billion.

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