April 24th, 2019 by Kyle Area
Tesla introduced its earnings for the first quarter of 2019 with its traditional letter that summarizes the monetary milestones hit and missed all through the quarter. The highlight of Q1 2019 is clearly the fact that Tesla was not profitable for the primary quarter since attaining profitability in Q3 of 2018, but the full story is rather more complicated than just the headlines that may populate the nightly information at all the standard mainstream media retailers.
Dig into the letter your self by downloading it from Tesla’s Investor Relations website or refresh this article for all the updates from the letter and the quarterly earnings name as they unfold. Tune into the decision instantly by heading over to CleanTechnica’s livestream of the call on CleanTechnica TV or head over to Tesla’s Investor Relations website.
Highlights from Tesla’s quarterly letter:
- GAAP operating lack of $522M
- GAAP internet lack of $702M, including $188M of non-recurring expenses
- Cash and money equivalents of $2.2B at Q1-end
- Model 3 gross margin ~20% in Q1
- Revealed Tesla Model Y (March 14th)
- Started manufacturing of Full Self Driving pc
- Tesla paid off the $920 million convertible observe in Q1 2019
- Tesla produced on the order of 63,000 automobiles in Q1 2019. This can be a 3% improve vs previous quarter.
“Manufacturing of automobiles for abroad markets began in Q1. This required vital effort for Tesla and resulted in a listing build for abroad markets on the entrance half of the quarter, with shipments loaded into the again half of the quarter. The final 10 days of the quarter, specifically, noticed the majority of the deliveries as Tesla pushed to unload the inventory it had constructed up within the front half of the quarter.
“Tesla filled the pipeline of Model 3 shipments to European and Chinese markets. This significantly increase the in-process inventory. Dropping prices in Q1 puts pressure on automotive margins. We need to work through this in Q2, impacting profitability.”
On to the convention name …
Elon: We have to do higher at spreading our deliveries out over the quarter, versus batching them up in a quarterly cycle that leads to chaos on the finish of the quarter as we sprint to satisfy our production and supply targets. Can be “unwinding the wave.”
Elon on pricing modifications and store closures: “we certainly didn’t handle messaging well.” (Indeed.) We’ll truly proceed to add shops in areas the place it is sensible, but we may even proceed to close stores where they don’t make economic sense. “It’s actually just common sense,” Musk stated. “The stores are essentially like information centers, where you take test drives, buy some merchandise.”
Zachary Kirkhorn, Tesla CFO: Model 3 ASP was near $50,000 in Q1.
Although S & X have been available on the market for years, Tesla continues to make operational/production improvements.
Jump To Section
Q: Will Tesla have the ability to full their purchase of Maxwell Technologies? What is holding that again?
Tesla Answer: “Right now we’re just going through approvals with the SEC. There’s not a whole lot of things holding it back. We’re on schedule, we’re on track. Right now we’re hoping to close in mid May.”
“Is Tesla considering creating an insurance program in order to further simplify the owner experience and to more accurately take into account safety of driving on Autopilot?”
Elon: “Yes, we are creating a Tesla insurance product, and we hope to launch that in about a month. It will be much more compelling than anything else out there.”
Q: “When and where will the Tesla Semi production begin?”
Jerome Guillen: “We’ll start production later next year.” Making all batteries and drive models in Sparks, “Northern Nevada.”
Elon: “The prototypes are working amazingly well. … We even used them to deliver some Model 3s [in Q1].”
Full Self Driving
Elon: FSD hardware 3 isn’t value getting for an additional 2–3 months because the software program for it has not caught up with hardware 2.5.
(For extra on Full Self Driving, see our in depth Tesla Autopilot archives.)
Elon: Model Y car production must be in California (Fremont) or Nevada (Sparks). We anticipate to decide on this very quickly. We now have ordered the gear for the new strains already. It’s a very shut name between Fremon manufacturing unit or Gigafactory 1 (GF1). We hope to decide within the next few weeks.
Tesla seeing robust demand for all automobiles. The Model 3 Commonplace Vary Plus is a very compelling supply, and Tesla is seeing robust demand for it.
Individuals have been waiting for an upgrade on the S & X, it seems, they usually’re now seeing an uptick in demand and anticipate that to be quite vital. (Also value noting from elsewhere in the call: S & X manufacturing was down in Q1 as a consequence of Tesla prepping for the upgrade/change.) Tesla’s greatest guess is returning to the 100,000 models/a yr production and demand price for S & X, however they don’t have a crystal ball.
Query from Ryan J. Brinkman, JP Morgan Chase & Co.: How might Tesla construct Model Y in Fremont if it’s already at capacity? “Is anticipated demand for Fremont-built automobiles lower than was beforehand thought, or have you managed to perhaps discover more capacity in Fremont — for example, with the tent or another manufacturing technique?
(Kyle: It’s technically a sprung structure, generally used around the globe as semi-permanent buildings for all types of purposes.)
Elon: “We feel that we can actually append building space to the — basically, to the west side of the building — and use a lot of internal space that’s currently used for warehousing in our Fremont factory, and so we believe it actually can be done with minimal disruption to add Model Y to Fremont.” [Editor’s note: Having just been in Fremont, this answer makes a lot of sense and I could very well see that happening.]
Query: What was the initial order intake on Model Y?
Elon: We don’t need to comment on this as individuals read into deposits too much.
Query from Pierre Ferragu, New Road Analysis: “Where will we see in Q2 ache factors, the place in Q3 and This fall you had a profit for comparable volumes? How a lot of the loss in Q2 can be considered one of value? How a lot is worth points coming down within the combine? And how a lot is said to pricing and other issues?
Elon gave an extended answer that wasn’t very clear but indicated it was on account of their efforts to unwind their international supply “wave” in Q2, which helps Tesla’s working capital by way of the quarter and in addition is best for patrons.
Zach Kirkhorn added that the worth adjustments additionally contribute (since that brings down ASPs a bit).
Adam Jonas of Morgan Stanley: “There’s so much drama around Tesla’s share price and quarterly results. From the outside at least, it just looks like a huge distraction. And at the same time, there’s so much alternative capital, and large amounts of strategic capital that is incrementally deployed in domains where Tesla has real leadership. So, how important is it for Tesla to be a publicly traded company, Elon?”
Elon: “Well this may, I don’t want to surprise you but — I’d prefer that we were private. Unfortunately, I think that ship has sailed.” (Semi joking, however not likely.)
“Being public, the kind of worth of the stock is being set in a manic depressive approach. I feel Warren Buffett’s analogy is, being a publicly traded firm is like having somebody stand on the edge of your property and just randomly yell totally different prices for your home day by day — nonetheless the same home.
“It’s a bit of a distraction sometimes … but I’m not sure what to do about it.”
Adam: “Okay, I understand. Thanks.”
Afterward the decision, one other questioner, A.M. Sacconaghi of Sanford C. Bernstein & Co., got here back to the topic of a capital increase. “Aren’t you, potentially, trying to go through a very thin space while trying to grow quickly and be self funding? Which, quite frankly, may be unrealistic. Why not raise capital? Why do you view that as something Tesla shouldn’t do, or wouldn’t do?”
Elon famous he didn’t assume raising capital must be an alternative to making the corporate operate extra effectively. He stated he thought it was necessary to have robust monetary self-discipline on the firm and be frugal. “If we just raise capital every time, we don’t have the forcing function for improving the fundamental operation of the business. So I think it is healthy to be on a spartan diet for a while.”
“At this point, I do think there is some merit to raising capital.” He also famous, though, that he doesn’t assume capital has been a constraint on Tesla’s progress up to now.
Tesla is on monitor for the very best number of deliveries of the first month of any quarter.
Elon: We consider the $39,500 base Model 3 is a particularly compelling car that the highest ~40% of consumers in North America and Europe. We are seeing and anticipate to continue to be able to see robust demand for Model 3.
Later within the Q&A, Model 3 demand and trims got here up again:
Model 3 is just not built to order like S and X are. As an alternative, well-liked variants are bundled together and inbuilt batches to maximise manufacturing efficiency. After being built, specific automobiles are matched up to buyer orders and dispatched accordingly.
“Our goal, as we’ve been very clear about since starting the company, is to make our cars as affordable as possible,” Musk stated. Tesla thinks that the distinction between 220 miles of vary and 240 of vary (within the Model 3 Normal Range vs the Model 3 Commonplace Range Plus) is more necessary than individuals understand. “The $39,500 Model 3 is spot on and we’re seeing consumers respond accordingly.”
Tesla Autopilot Safety
Adam Jonas requested when can we anticipate Tesla to get Autopilot safety figures validated (by regulatory bodies).
Elon: “Reporting in detail just gives those who are opposed to Tesla — they sort of, like, data mine the situation and try to turn a positive into a negative, so we’re just going to keep reporting what we report. We do give some more detailed information to insurance companies — to help with rates. …”
Tesla Insurance coverage (Again)
Elon: “… as we launch our own insurance product, next month, we will certainly incorporate that information into the insurance rates. We essentially have a substantial information arbitrage opportunity where we have direct knowledge of the risk profile of customers, or the car. Then if they want to buy Tesla insurance, they have to agree to not drive the car in a crazy way. Or they can, but the insurance rate’s higher.”
When will Tesla’s Power enterprise take off? Elon: we now have been pulling out all the stops in our battery manufacturing to keep our automotive enterprise on monitor. We anticipate to have the ability to dedicate 5-10% of cell output to the power enterprise this yr. There are far fewer cells in a Powerpack or Powerwall than in a automotive. Elon expects vital progress in Powerpack and Powerwall this yr. “Something on the order of 300%,” Elon stated.
Elon: we’re trying to scale photo voltaic roof tiles up significantly.
Question: How shortly will you be capable of integrate Maxwell Know-how tech into batteries?
Elon: Haha. “We’ll probably have an investor day later this year or early next to go over the cell and battery technology and future strategy and that will be very informative. We do recognize the criticality of this,” Musk stated.
Model S & X
Deliveries of Model S and X have been down considerably at 12,100 in Q1 versus steerage of 25,000 automobiles per quarter. Why? Cannibalization from Model 3?
No, solely about 3.5% of trade-ins for Model 3 are from Model S house owners. Model S house owners principally simply need to commerce in for Model S, or Model X. This drop was largely resulting from three elements:
- The pull ahead of demand into This fall 2018 because of the step down of the US federal tax credit score.
- The elimination of the 75kWh battery pack for S and X.
- Seasonally low automotive sales in Q1 vs This fall.
Additionally famous elsewhere, S & X production strains have been reduce to be able to prepare for the S & X upgrades just announced yesterday.
Additionally famous repeatedly, Elon expects S & X demand to rise again to ~100,000 a models a yr.
Cash and cash equivalents are down $1.5 billion to $2.2 billion due largely to the cost of the $920 million convertible notice.
Query: Are you able to speak concerning the sale of credits to FCA in Europe?
Elon: It’s a confidential deal, so we can’t comment on this.
Query: Are you able to share car manufacturing and gross sales numbers quarterly to dilute the strain on these quarterly financial milestones?
Elon: The info continues to be bumpy on the monthly degree and this may trigger more chaos as media corporations and buyers read too much into a few of them. “That would increase the drama, not decrease it,” he stated. “It just ends up being lumpy.”
Question: Do you estimate another pricing adjustment?
Elon: We don’t comment on future worth modifications.
Question: Wanting on the 10Okay, you’ve persistently noted this $4.9 billion purchase obligation. Does this correlate to reaching the 35GWh fee? Can you modify this?
Answer: The purchase obligation is for the complete contract for Panasonic. This is going to take a couple of years to hit.
Tesla’s increased concentrate on capital effectivity has permeated the corporate and resulted in a elementary shift in company tradition. Tesla will construct the Shanghai Gigafactory with $500 million in capital, which is a big enchancment over Gigafactory 1 spending.
Question: Do you will have a battery provider for the Shanghai Gigafactory yet?
Elon: Progress on the Shanghai Gigafactory goes extraordinarily properly. It appears like we’ll attain quantity manufacturing at the end of this yr at 1,000 automobiles per week, perhaps 2,000. That’s what it appears like right now. We anticipate to have a number of cell suppliers for Shanghai Giga.
Moderator: That’s on a regular basis we now have for Q&A in the present day. Thanks for all of the questions and we look ahead to talking with you next quarter.
Concerning the Writer
Kyle Area I’m a tech geek passionately looking for actionable methods to scale back the adverse influence my life has on the planet, get monetary savings and scale back stress. Stay deliberately, make acutely aware selections, love extra, act responsibly, play. The more you realize, the much less you need. TSLA investor.
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