Tesla’s Q1 Earnings Part 2.

I summarized my insights on Tesla after their Q1 Investor Letter in the preceding post. Here’s a bit more detail on some financial and non-financial aspects of their performance. If you prefer, you can read the full report here.

Operating Performance

Tesla reported total revenue of $937 million, which is an increase of 51.4% from the same quarter, last year. They have an additional increase in deferred revenue of about $164 million from their leased vehicles (versus outright sales) which tends to accrue over a number of years and therefore is not immediately accounted for in their revenue numbers.

Their cost of revenue increased 46% from last year to $680 million.

Their gross margin improved from 24% last year to about 27% this quarter, which meant that they not only increased their revenues, but also got more money out of each dollar of sales.

Never the less, the company still reported a net loss since they boosted their Research and Development spending by 104%, and spent a lot more money in borrowing costs. Their selling, general and administrative expense also saw a marked increase, some of which however, was justified since the company delivered almost 11,000 vehicles in the Quarter.

Overall, it’s a great quarter.

Balance Sheet

There are a number of interesting items in their balance sheet, you’d probably be best served perusing it yourself. The one thing that stood out to me was the reduction in customer deposits, which is typically carried as a liability for the company. Here’s why.

When you buy a Tesla, the company usually makes you deposit a sum ( $2,500 for the Model S, $5000 ), to essentially secure your place in the line and then complete the payment for the car when it’s ready to be delivered. The company carries the money deposited by customers like that as a liability on it’s balance sheet. To me, this was a good way to guage demand and estimate what actual sales and delivery numbers are likely to be going from quarter to quarter. So, seeing the number of deposits go down (albeit just -4%) is a tad worrying, especially since the company expects to start shipping the Model X later in the year. In my estimation, those deposits should be going up. I’ll be watching the space.

Free Cash Flow

Tesla’s free cash flow (cash generated from operations-capital expenditures) is balling in the negatives, the company having spent down it’s cash reserves by over $550 million. Much of it is due to the investments, but even without them, the company still reported negative cashflow from operations in this quarter (-$180m) versus a positive operating cashflow of $58 million in the same quarter last year. That’s the second worry. At a point, the company needs to at least start generating enough cash (not necessarily profits) from it’s operations to keep it going. But they still have $1.5bn in cash and the markets are more than willing to lend them even more so it’s not a big problem at the moment.

Overall, the company is progressing towards it’s goal nicely. Average sentiment on their stock is up, and the business looks stable and growing. Too many people were expecting less, and there were a lot of places where things could have gone super wrong, so I applaud Musk for largely holding it all together.

The stock is down right now, about -0.78% which is to be expected given it’s previous run up. I expect it to close slightly higher, overall.

Current price: $228.64

Check out the full earnings release here, and let me know your thoughts.

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