Continuing its trend of widening losses but increased production and delivery, Californian automaker Tesla Motors [NASDAQ:TSLA] released its official Q3 earnings moments ago, sending shares rocketing skyward in after-hours trading — despite losses being larger than Wall Street had predicted.
As its official Q3 shareholder letter details, the official commencement of Tesla Model X deliveries during Q3, combined with Autopilot rollout to some 40,000 Model S and Model X cars worldwide and the news that Gigafactory construction is progressing ahead of schedule paints a generally positive picture for investors. Looking forward, Tesla says it plans to smash all production and delivery records in Q4, achieving a total delivery figure for the year of somewhere between 50,000 and 52,000 cars.
The following report has been written using information provided by Tesla in its official Q2 Shareholders Letter, which you can read on Tesla’s shareholder site.
Production, deliveries increase again
Despite shutting down its Fremont facility for one week during Q3 in order to ready its production lines to build its Model X crossover SUV, Tesla reports that it produced a total of 13,091 vehicles during the quarter, up from 12,807 in Q2. That shut down, said Tesla, represented a retooling which will increase production line throughput by over 35 percent, as well as the commissioning of a brand-new paint shop, new stamping equipment and the entire Model X body line.
Deliveries too were up, with Tesla’s final Q3 delivery figure standing at 11,603 vehicles — a small increase on the 11,532 vehicles delivered during Q2 and slightly higher than the predicted figure of 11,580 vehicles Tesla gave us at the end of Q3. As we said last month, the total number delivered is less than the total number produced since Tesla does not account for a vehicle being delivered until it is handed over to a customer and all paperwork has been completed. Consequently, this means that during Q3, some 1,488 vehicles were either in transit to new customers, were in U.S. inventory awaiting use in Tesla’s press or courtesy car fleets, or were being shipped to overseas Tesla customers.
Orders were up too, said Tesla, with Model S global order figures some 50 percent higher than the same quarter last year. Growth in North America, Asia and Europe over Q2 helped push order figures upward. In China, where Tesla’s Q2 figures had been disappointing, Tesla said the opening of two new retail locations, along with recent policy changes in Beijing and other major cities exempting Tesla customers from strict license plate lotteries meant that Q3 figures were substantially higher than Q2. That growth should continue into Q4, it predicts.
Just as the average price paid for a Tesla electric car fell during Q2, the same can be said of Q3. That, says Tesla, is due to the Q3 being the first full quarter in which its new entry-level Tesla Model S 70 and 70D models have been available. With those two models commanding a lower sticker price, it follows that the average price paid for a Model S has dropped accordingly.
That price will rise again for Q4, says Tesla as preorders for its high-end versions of its Model X crossover SUV are fulfilled.
Tesla Gigafactory production ahead of schedule, Investment up
In addition to the good news from Tesla’s Fremont facility, Tesla disclosed in its Q3 shareholder letter that construction of the Gigafactory in Reno, Nevada is ahead of schedule. This accelerated development, partly due to the overwhelming demand for Tesla Energy Powerwall and Powerpack grid storage devices, will require Tesla to increase its overall investment during Q4 to some $500 million, representing a year-long investment of $1.7 billion.
We note however, that not all of the predicted Q4 investment will go to the Gigafactory. Tesla said some of its planned Q4 investment will enhance vertical integration of seat assembly and other manufacturing activities at its Fremont facility, as well as faster milestone execution by certain suppliers for Model X manufacturing equipment and tooling.
Massive Acceleration, Demand for Tesla Energy
Unveiled earlier this year, Tesla’s brand-new line of energy storage products, sold under the Tesla Energy name, are still experiencing incredible demand levels. Particularly high demand is being experienced from Australia, Germany and South Africa, said Tesla, leading it to accelerate its plans for Tesla Powerwall and Powerpack production.
As a consequence, production of the Tesla Powerpack and Powerwall battery packs was moved to the Gigafactory at the start of Q4, replacing the temporary production line Tesla had set up at its Fremont facility in Q3.
The new production line, which Tesla notes is automated, position Tesla in for “strong growth in 2016, but the Gigafactory pull-ahead will push some Tesla Energy Q4 production and deliveries into Q1.”
To keep up with demand for the Tesla Energy products however, Tesla says it has dramatically accelerated its plans for cell development at the Reno facility, bringing forward Tesla energy cell production to the end of next year, several quarters ahead of its original plan.
Revenue, Losses up
Despite the generally positive news contained within its Q3 Shareholder letter however, Tesla’s total losses were up again on Q2, despite having a non-GAAP revenue of $1.24 billion for the quarter, up nearly 33% on the same period last year. The Non-GAAP reporting method, which allows Tesla to factor in revenue from cars being leased by customer in its overall outlook, paints a slightly rosier picture than the GAAP method — the standard accounting method used by all U.S. firms. Using GAAP methods, Tesla revenue for the quarter sits at $937 million, giving a total Q3 gross margin of 24.7 percent on a GAAP basis and 25.1 percent on a non-GAAP basis.
Since Tesla has yet to fully ramp up its Tesla Energy products, the majority of Tesla’s revenue during the quarter came from its automotive division, with the $1.16 billion in automotive revenue coming from GAAP Automotive revenue of $853 million plus a net increase of $307 million in deferred revenue as a result of lease accounting. In total, Tesla leased 494 cars directly to customer in Q3, worth a total of $45 million of aggregate transation value.
Also earned during the quarter was some $39 million in ZEV credits sold to other automakers, as well as $33 million in pre-owned Tesla Model S sales. It’s worth noting that Tesla actually sold more pre-owned Teslas during Q3 than it received as part of customer trade-in programs, leading to a 17 percent reduction in its trade-in inventory.
With expenses up to $363 million on a non-GAAP basis, Tesla says its expenditure was up 5 percent on Q2, also on the rise was stock-based compensation, due to the large number of new hires joining the company. Much of Tesla’s spending during Q3 went to the capacity expansion and tooling setup for Model X, as well as continued construction costs at the Gigafactory.
Combined, this results in a Q3 non-GAAP net loss of $75 million, equivalent to $0.58 per share based on 128 million basic shares and up from Tesla’s Q2 non-GAAP losses of $64 million. Using GAAP methods, Net loss was $230 million, equivalent to $1.78 per share and up from Tesla’s Q2 GAAP losses of $184 million.
In reporting these losses, Tesla notes that both figures include a $15 million loss related to changes in exchange rates around the world, most noticeably a weakness in the Norwegian Krone, Canadian Dollar and Chinese Yuan.
But while losses are larger, we also note that Tesla paid back the entire $50 million drawn against the asset-based credit line it set up during Q2.
At the time of writing, Tesla’s stock has risen in after-hours trading from $208.35 per basic share to $229.27 per share, pushing it toward a share price not seen since the start of October.
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