Investor's Corner
Tesla beats Wall St. estimates: $7 billion revenue; record Model S, X orders; Model 3 production starts in July
Tesla released its fourth quarter 2016 earnings after the closing bell on Wednesday, summarized in the Q4’16 Update Letter, surprising Wall Street after posting fourth quarter earnings loss of 69 cents a share, at the low end of the estimated analyst losses. Revenue was $2.28 billion versus an estimate of $2.13 billion.
The complete text of the Tesla Fourth Quarter 2016 Update letter can be seen at the end of this article. We’ve embedded a copy of the original document from Tesla.
Revenue
In the letter, Tesla announced that “2016 revenue of $7 billion, up 73% from 2015.”
This is the first time Tesla reported earnings since the company’s acquisition of SolarCity Corp. in mid-November. Tesla had done little to guide the market for how to expect results, leading some analysts to exclude the solar panel business from their estimates until greater clarity is provided. As a result, the estimates between analysts varied widely. Some were expecting the company to report a loss of as low as $0.43 per share on revenues of $2.18 billion for the December quarter. Other analysts were expecting a loss of as much as $1.19 a share. According to a consensus poll with analysts conducted by FactSet, Tesla was expected to report an adjusted fourth-quarter loss of 53 cents per share. Expectations varied greatly.
Model 3
In the letter, Tesla announced that “Model 3 on track for initial production in July, volume production by September” and reiterated that “the Model 3 and solar roof launches are on track for the second half of the year.”
The company also reported record high orders in Q4 for its Model S and X vehicles.
Elon has set a July 1 deadline for his suppliers and internal teams to be ready for production. Investors will be listening for additional information about the status of the Model 3 during the conference call scheduled for 2:30 pm PT today.
An update on the Model 3 is highly anticipated. With Elon Musk’s goal of manufacturing and selling 100,000 to 200,000 Model 3’s in the second half of 2017, and half a million cars per year by 2018, this is a major driver for the stock. Since the company ended 2016 producing 83,922 cars, or roughly 230 cars per day, ramping up production sixfold will require new investments in equipment, people and facilities.
Guidance for 2017
In the letter, Tesla states that “We expect to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.”
Elon Musk has a history of setting ambitious targets and missing deadlines. Jeffrey Osborn, an analyst for Cowen and Co., wondered if the influence of Chief Financial Officer Jason Wheeler, after about 18 months into his job since coming from Alphabet Inc., would have been seen in setting more conservative 2017’s targets.
SolarCity
In the letter, Tesla announced that “SolarCity and Grohmann integrations underway.”
Elon Musk also faces the challenge of integrating SolarCity into Tesla. He dropped the word “Motors” from the company’s name earlier this month as he looks to make a fully integrated company that makes solar powers to generate energy, large batteries for storing that power at home and offices and electric cars that can run on it. Since the deal closed on Nov. 21, Tesla shares have risen almost 50%.
The quarter’s results include just over a month of the SolarCity merger. It may be difficult to determine how much it impacted Tesla’s numbers unless management provides specific information on SolarCity. March quarter’s guidance will be even more important than usual since it will include a full quarter of SolarCity’s business. Watch for some of these issues to be discussed in the Conference Call Q&A.
Cash
In the letter, Tesla announced that “Q3 to Q4 cash increased by over $300 million to $3.4 billion. In Q4, we increased cash by $309 million.”
One of the big issues against the SolarCity deal was the effect it would have on Tesla’s cash pile just as it prepares to introduce the Model 3. Mr. Musk has said he has enough money, though signaled he might raise additional cash through the capital or debt markets. Tesla’s guidance in October suggested it planned to spend about $1 billion on capital expenditures in the fourth quarter. Tesla finished September with $3.1 billion in cash.
TSLA Stock
Tesla shares have been on a tear, up 53%to $277.39 since December 2 when they closed at $181.47. From a technical perspective the shares had created a double bottom when combined with the low from November 14 of $181.45. The 53% increase has led to the stock being overbought but the shares have been overbought since the beginning of the year when they were trading at $214. The shares are also 18% above their 50 day moving average and 29% above the 200 day moving average. All of these are bullish indicators, closely followed by technical investors and traders.
The previous time the shares were this far above its moving averages was back in 2014. While it may only be short-term the stock is more likely to move down vs. up after today’s earnings announcement.
Today’s session ended up closing 1.4% lower, with some traders not wanting to risk the huge gains over a Quarterly report. Looking at the extended trading action after the close, the initial reaction to the numbers for Q4 2016 is hugely positive, with the stock raising to $280 just 1 minute after the close and continuing into the session. Expect a positive opening on Thursday.
[pdf-embedder url=”http://www.teslarati.com/wp-content/uploads/2017/02/TSLA_Update_Letter_2016-4Q.pdf”]
Tesla has scheduled its Earnings Call for Q4 and Full Year 2025 for next Wednesday, January 28, at 5:30 p.m. EST, and investors are already preparing to get some answers from executives regarding a wide variety of topics.
The company accepts several questions from retail investors through the platform Say, which then allows shareholders to vote on the best questions.
Tesla does not answer anything regarding future product releases, but they are willing to shed light on current timelines, progress of certain projects, and other plans.
There are five questions that range over a variety of topics, including SpaceX, Full Self-Driving, Robotaxi, and Optimus, which are currently in the lead to be asked and potentially answered by Elon Musk and other Tesla executives:
- You once said: Loyalty deserves loyalty. Will long-term Tesla shareholders still be prioritized if SpaceX does an IPO?
- Our Take – With a lot of speculation regarding an incoming SpaceX IPO, Tesla investors, especially long-term ones, should be able to benefit from an early opportunity to purchase shares. This has been discussed endlessly over the past year, and we must be getting close to it.
- When is FSD going to be 100% unsupervised?
- Our Take – Musk said today that this is essentially a solved problem, and it could be available in the U.S. by the end of this year.
- What is the current bottleneck to increase Robotaxi deployment & personal use unsupervised FSD? The safety/performance of the most recent models or people to monitor robots, robotaxis, in-car, or remotely? Or something else?
- Our Take – The bottleneck seems to be based on data, which Musk said Tesla needs 10 billion miles of data to achieve unsupervised FSD. Once that happens, regulatory issues will be what hold things up from moving forward.
- Regarding Optimus, could you share the current number of units deployed in Tesla factories and actively performing production tasks? What specific roles or operations are they handling, and how has their integration impacted factory efficiency or output?
- Our Take – Optimus is going to have a larger role in factories moving forward, and later this year, they will have larger responsibilities.
- Can you please tie purchased FSD to our owner accounts vs. locked to the car? This will help us enjoy it in any Tesla we drive/buy and reward us for hanging in so long, some of us since 2017.
- Our Take – This is a good one and should get us some additional information on the FSD transfer plans and Subscription-only model that Tesla will adopt soon.
Tesla will have its Earnings Call on Wednesday, January 28.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
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