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Tesla Earnings: 3 Questions for Elon Musk

Daniel Sparks, The Motley Fool

There are several important narratives playing out at Tesla (NASDAQ: TSLA). Though Model 3 production has skyrocketed, the company's net loss and negative free cash flow have significantly worsened. Sure, management expects Tesla's financial situation to improve as Model 3 deliveries rise, but there are no guarantees.

Unsurprisingly, big questions loom. Investors are about to get some key answers in a vital quarterly update. The electric-car and sustainable-energy company just put a date to its second-quarter update: August 1. 

A woman unlocks her Model 3 with a Tesla app on her smartphone

Model 3. Image source: Tesla.

Ahead of Tesla's second-quarter update, here are three key questions investors are likely hoping Tesla CEO Elon Musk will answer:

1. How's Model 3 production faring?

Investors don't have to wait until Tesla's second-quarter update to hear how Model 3 production and deliveries went during the period. The company already released those figures. Tesla produced a record 53,339 vehicles -- up 55% sequentially. Of those vehicles, 28,578 were Model 3. But since Tesla's Model 3 output ramped up exponentially throughout the quarter, most of the vehicles were produced toward the end of the period, leaving 11,166 Model 3 units in transit to customers going into Q3.

Importantly, Tesla achieved its target for producing 5,000 Model 3 units per week by the end of the quarter -- but it achieved it during the last seven days of the quarter, leaving investors guessing how sustainable this new production level is. Alleviating at least some concerns, Tesla did note it was able to achieve this Model 3 production rate while keeping its Model S and X production at normal levels.

The big question, therefore, is how Model 3 production has proceeded since Tesla achieved its target Model 3 production rate. Has Tesla been able to sustain this higher level of output? In addition, does Tesla still expect to achieve a production rate of 6,000 Model 3 units per week by late August?

2. What's next for Autopilot?

After Tesla's driver-assist system was first released in October 2015, the company aggressively improved the technology through regular over-the-air software updates that brought major new updates, including driver-assisted steering, lane changes, the ability to "summon" the vehicle in and out of tight spaces, and improved automatic emergency braking.

But Tesla's Autopilot program seems to be falling behind schedule recently. For instance, Musk initially promised to demonstrate one of its vehicles driving across the country by late 2017, thus proving Autopilot's yet-to-be-released "full self-driving capability" add-on is the real deal. But Autopilot seems to be taking a back seat as Tesla focuses on accelerating Model 3 production.

Now that Model 3 production has jumped, will the automaker dedicate more effort to Autopilot?

Model 3 interior and 15-inch touch display

Model 3. Image source: Tesla.

3. Will Tesla need to raise capital this year after all?

Tesla's cash situation doesn't look good. The company ended its first quarter with $2.7 billion of cash, yet management plans to spend about $2.3 billion more in Q2, Q3, and Q4 combined despite having negative free cash flow of $1.05 billion in Q1. Making matters worse, Tesla said it didn't expect to become cash flow positive until Q3 -- so this means Q2 will likely feature negative free cash flow as well.

Management has previously predicted it wouldn't need to raise capital this year since it expected higher Model 3 deliveries to help the company become both profitable and cash flow positive in the second half of the year. Is management sticking to this plan? Or is the capital-intensive auto business more costly than management anticipated?

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.