Investor's Corner

Tesla beats on revenue, misses on Model 3 production, stumbles to reduce losses

Tesla released its third quarter 2017 earnings after the closing bell on Wednesday, summarized in the Q3’17 Update Letter. The results beat Wall Street’s revenue expectations and missed on bottom line. The company posted third-quarter earnings loss of $2.92 per share, representing a wider loss than analyst estimates of a $2.27 per share loss. Revenue was $2.98 billion versus an estimate of $2.92 billion.

REVENUE

The company’s revenue consisted of $2.36B in automotive revenue, $317.5M in energy generation and storage, and $304M in service and other revenue. Automotive revenue increased 3.33% over the second quarter, while energy generation and storage grew 10.7%. Automotive revenue primarily grew from the 4.5% sequential increase in Model S and X deliveries. Tesla attributed the gains in energy generation and storage to their south Australia battery storage project.

The company deployed 109 MW of energy generation products and 100MWh of energy storage products in Q3. This is a sequential increase of 12% over Q2 and 138% increase year-over-year. Tesla also stated that now 46% of residential solar installations were sold rather than leased, this is compared to just 13% of all residential solar in Q3 2016.

MODEL 3

Tesla delivered 222 Model 3s in the third quarter, representing a fraction of the total amount of the company’s deliveries and revenue. Tesla did not disclose in its Q3 letter the number of Model 3 units produced in the fourth quarter thus far, but did identify Model 3’s production bottlenecks to be that of the battery module line at Gigafactory 1. Tesla notes that the company decided to take over an automated process related to production of Model 3’s battery module from a ‘manufacturing systems supplier’ and redesign the process in-house. “We are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification.” read Tesla’s update letter.

Tesla also included a  video of the Model 3 being worked on in general assembly.

GUIDANCE FOR END OF 2017

While Tesla expects the Model 3 to have a break-even gross margin in Q4, then go on to “improve rapidly” to their target of 25% in 2018. The company previously expected the Model 3 to carry a positive gross margin in Q4, but production “bottlenecks” pushed back that goal. In Q4 the overall non-GAAP automotive gross margin is expected to drop to 15%, compared to 18.7% in Q3.

Tesla expects to produce a total of 100,000 Model S and X vehicles this year and expects to reach a production level of 5000 Model 3 vehicles per week will at the end of Q1 2018.

Tesla has just over $3.53B in cash at the end of the quarter, up nearly $137M from Q2. This includes the $1.8B the company raised through a debt offering in August. The company expects to spend roughly $1B on capital expenditures in Q4, compared to $1.1B in Q3.

Today’s session ended up closing down at a 3.15% a loss and down another 4.07% in after-hours. Looking at the after-hours trading action after the close, the initial reaction to the numbers for Q3 2017 is quite negative, with the stock dropping to $308. Still, Tesla stock is up 50% in 2017 and nearly 70% in the past 12 months.

The full Q3 letter can be found here.

Tesla beats on revenue, misses on Model 3 production, stumbles to reduce losses

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