Tesla’s Q1 Earnings

TESLA

The actual call has not started, but since I’m going to be busy when it finally starts, I’ll give my quick run down of insights I gleaned from the Investor Letter which Musk shared on the company website.

#1. Tesla is still learning how to make cars.

This is a relatively young company, doing a completely new type of manufacturing at a small scale. Tesla doesn’t have the scale and expertise of the majors so they’re really just learning and improving their processes and productivity as they go along. The company has hit it’s goal of 25% margin on it’s car business. But it’s still squeezing cost efficiencies out, standardizing it’s production packages and streamlining its order system. Which means, with each generation of the Model S, the cars get better, the margins and costs improve and so on. This is very much a learning on the job situation.

#2. The company is still heavily in investment mode.

Tesla is boosting its manufacturing capacity at home, pouring money into the Gigafactory, putting finishing touches on the Model X which starts delivering later this year, and investing heavily in the development of the Model 3 which is expected to be the mass market version. All of that means that Capital Expenditure was around $430 million in Q1, and is expected to top $1.6 billion for the entire year. If this wasn’t the case, the company would’ve been cash flow positive, and even profitable. But of course that is going to be the case for a while to come.

#3. Tesla still needs the ZEV credit sales, and Daimler

Tesla made $51 million from selling zero emission credits to other car companies who still need gas to run. That represents about 4% of its automotive revenue for the quarter. It also made about $46 million in service revenue, more than half of which came entirely from supplying powertrains to Daimler, for the EV push. Combined, these help Tesla’s margins and operating results, as without them, the company would announce significantly larger losses (most of the $80m from these two go to their bottomline). There’s the sense that Tesla needs more revenue channels, which I think is partly what the PowerWall business is meant to address.

PowerWall gets honorable mentions, as does the ‘signs of improving sales’ in China where they’ve had particular troubles. Overall, the company had a good quarter, better than analysts expected. The stock is up 5% in the closed markets right now.

The conference call starts a bit and I’ll do a full post, tomorrow.

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