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Tesla expects to become profitable in 2016, shares surge

A Tesla logo adorns a 'Model S' car in the dealership in Berlin, Germany, November 18, 2015. REUTERS/Hannibal Hanschke

By Sai Sachin R and Alexandria Sage

(Reuters) - Tesla Motors Inc Chief Executive Elon Musk on Wednesday promised investors that the electric luxury car maker would stop burning cash and start making money this year, sending the company's shares up sharply despite a wider fourth-quarter loss.

Tesla shares rose more than 10 percent in after-hours trading after the company forecast a 60 to 80 percent increase in vehicle sales this year and promised it would turn a profit on an adjusted basis.

However, the company's stock is still down more than 30 percent since the beginning of the year, reflecting investor concerns about continued losses.

Musk and the company's new chief financial officer, Jason Wheeler, used a conference call on Wednesday evening to assure investors that Tesla is determined to cut costs, hit production targets and stanch losses.

"Cash is king," Wheeler said.

Musk said Tesla would generate positive cash flow even after investing $1.5 billion to add capacity to a huge battery factory in Nevada, and start producing battery cells there. "Moderate GAAP profitability is expected in the fourth quarter," Musk wrote in a letter to shareholders on Wednesday. GAAP refers to the generally accepted accounting principles that govern how listed companies report results.

Tesla’s cash reserves dropped to $1.2 billion as of Dec. 31 from $1.9 billion a year earlier, despite a sale of shares last summer. The company’s cash burn has become a concern for some analysts, given the heavy capital spending it has mapped out.

Tesla straddles the digital technology and automotive industries, which have both been hard hit this year by investors worried that growth is slowing in both sectors. General Motors Co earlier this month reported record profit, but its shares have fallen 18 percent this year.

Tesla shares rose even though it reported a wider fourth-quarter net loss of $2.44 a share, compared with a loss of 86 cents a share a year earlier. Deliveries of Model S sedans and Model X sport utilities were 17,478 vehicles in the quarter, at the low end of prior forecasts. Revenue rose nearly 27 percent to a record $1.21 billion.

"You cannot bet against Elon Musk," said analyst Ivan Feinseth of Tigress Financial Partners.

Tesla said it planned to deliver 80,000-90,000 Model S and Model X vehicles in 2016, ahead of Wall Street's average expectation for about 79,000 vehicles, according to research firm FactSet StreetAccount.

Tesla said its long-promised moderately priced car, the Model 3, would be unveiled on March 31. Musk, in the letter to shareholders, said the Model 3 should be launched in 2017. He added during the call that Tesla's Fremont, California, factory now has a new paint shop capable of handling 10,000 cars a week, or roughly 500,000 vehicles a year.

(Reporting by Sai Sachin R in Bengaluru and Alexandria Sage in San Francisco; Writing by Joseph White; Editing by Anil D'Silva and Matthew Lewis)