Elon Musk's electric car maker reported net loss attributable to common shareholders of $121.3m (£97m) for the three months period, down from $320m in the same quarter of 2015.
Revenues rose 88 per cent to $2.28bn, while total operating costs rose to $702m.
The firm said it planned to invest up to $2.5bn in capital expenditures ahead of the sart of Model 3 production later this year.
The Model 3 represents a substantial part of Tesla's goal of selling 500,00 cars annually in 2018.
Responding to the news, the car marker's shares climbed 1.6 per cent to $277.89 in after hours trading.