Founding a car company, then guiding that car company into profitability is hard. Doing so while retaining an unblemished public image is even harder.
It’s one of the reasons why the automotive industry — and more specifically the plug-in automotive industry — is littered with the battered corpses of companies who tried and failed to bring a new car brand to market.
Yet Californian automaker Tesla Motors [NASDAQ:TSLA] seems to be doing just fine, and as its Q1 2014 report shows, on target.
Strong sales, growing production
Released yesterday afternoon local time, Tesla’s Q1 results show a company which is making solid progress towards becoming a mainstream automaker, with $713 million in revenue from deliveries of 6,457 luxury all-electric Model S sedans since the start of the year.
As its official Q1 2014 shareholder letter details however, Tesla actually produced 7,535 vehicles during Q1, with a production volume at the end of the quarter up 15 percent from its weekly production rate at the end of Q4, 2013. Vehicles produced by not sold were shipped to a variety of locations around the world, including China, where the Tesla Model S recently went on sale.
In its report, Tesla admits production volumes are constrained slightly due to availability of battery packs — something its upcoming Gigafactory will remedy. Even with that considered however, Tesla says it hopes to be producing 1,000 electric cars per week by the end of 2014. Given Tesla’s impending launch in the UK next month — the first market to sell the right-hand drive Model S — Tesla will need to make good on that promise to keep up with demand.
As with many companies, Tesla represents its books using both the Generally Accepted Accounting Principal (GAAP) and non-Generally Accepted Accounting Principal (non-GAAP) methodologies. Because GAAP can sometimes detrimentally reflect the books of a company which has invested a lot of funds in new equipment or expenses, it’s becoming more common to see GAAP and non-GAAP figures published.
For Tesla, Non-GAAP accounts don’t include things like stock-based compensation and non-cash interest expenses, but do include the deffered revenue and related costs for cars sold with Tesla’s popular Resale Value Guarantee (RVG).
As a consequence, non-GAAP revenue was up by 27 percent year or year for Q1, at $713 million. This included $15 million of revenue from the sale of power trains to Toyota for its RAV4 EV crossover SUV, and almost $12 million in regulatory credit sales. No ZEV credit sales were recorded during the quarter.
In terms of margins, Tesla said it achieved a non-GAAP automotive gross margin of 25.4 percent and a GAAp automotive gross margin of 25.3 percent, representing a 20 basis point improvement in non-GAAP automotive gross margin sequentially.
As with previous Tesla financials, there’s a slight profit when using non-GAAP methods, but a slight loss when using GAAP methods of accounting.
Q1 non-GAAP net income was $17 million, says Tesla, equivalent to around 12 cents per share based on 140.2 million diluted shares. Q1 GAAP losses were recorded at $50 million, equivalent to 40 cents per share.
Tesla’s non-GAAP earnings per share of 12 cents beat Wall Street expectations by two cents, but as the saying goes, “you buy on the rumor and sell on the news.” Consequentially, Tesla’s shares dropped substantially over night, losing 7 percent of their value. This morning however, Tesla shares have bounced back up, as is common following an official earnings report for any high-trading company.
In its Q1, 2014 report, Tesla said it anticipated spending on Tesla Stores, Supercharger deployment and service centres to go up. Combined with continued expansion in production capacity, Gigafactory groundwork and continued Model X and Model S development, Telsa says Capital expenditure in Q2 will be somewhere between $650 and $850 million.
This, says Tesla will coincide with a growth in operating expenditure for Research and Development of 30 percent over previous quarters and a 15 percent growth in Selling, General and Administrative (SG&A) expenditure.
Importantly, this equates to a likelihood that Tesla won’t turn much of a profit in 2014. That’s not to say the company is struggling however: Tesla is simply investing large amounts of money in multiple projects, from the completion of its Model X SUV– which Tesla says will enter into production early next year — to the massive expansion of stores, superchargers and service centres.
Oh, and of course, that little $5 billion lithium-ion Gigafactory.
Are you a Tesla shareholder? What do you make of Tesla’s Q1 report? Are you excited on what the rest of 2014 will bring for the company, or sacred about its future? Leave your thoughts in the Comments below.
You can also support us directly as a monthly supporting member by visiting Patreon.com.