Tesla Motors (NYSE:TSLA) announced its third quarter earnings on November 5. The Silicon Valley electric car company enjoyed a good quarter marked by the announcement of the Supercharger network and substantial progress in the Model S ramp-up. The company looks on track to maintain its earlier guidance of $400-$440 million in revenues for 2012, and has eased concerns of a possible liquidity crunch ensuing from a slight delay in production.
Model S ramp-up and outlook
- How Much Of Tesla’s Overall Revenue Is Unrecognized Due To Accounting Principles?
- How Much Do Tesla’s GAAP and Non GAAP Margins Differ?
- How Much Revenue Does Tesla Make Per Each Unit Vehicle Sold?
- How Has Tesla’s Gross Margin Behaved Over The Last Three Years?
- How Much Does Tesla Spend On Research and Development?
- How Much Does Tesla Spend On Selling, General and Administrative Expenses Per Unit Sold?
The production ramp-up of the Model S encountered issues earlier in the quarter primarily due to delays in supply chain, but Tesla says it is on target to achieve its goal of producing 400 cars per week by the end of the year, which translates to a production rate of 20,000 cars per year.
Tesla delivered 253 units of the Model S and 68 units of the Roadster, resulting in total vehicle revenues of around $50 million for the quarter. The company wound down the production of the Roadster last year and expects to sell the remaining units by the end of the year.
We assume the company receives around $66,000 per unit of Model S sold based on historical revenues per unit of the Roadster sold and weighted average of the Model S’s pricing options. This would translate to revenues of around $165-$200 million from the Model S next quarter. Model S revenues may be higher than this estimate considering that a large portion of deliveries this year may consist of higher end variants (the Signature version has already sold out). The company estimates total annual revenues of around $400-$440 million this year.
The success of the Model S is absolutely integral to Tesla’s long-term prospects and, going by the look of things right now, the outlook for the vehicle looks positive. This quarter’s earnings release indicates that net reservations (gross reservations minus deliveries) for the car have actually increased despite an increase in deliveries. Judging by this data, it looks very likely that the company will achieve its target of 20,000 deliveries in 2013. The Model S recently made an entry into the Canadian market, and the company is currently developing a European version of the car.
Supercharger could revolutionize auto industry in the long term
Earlier this quarter, Tesla announced its plans to establish a network of Supercharger electric car recharging stations across the country. It has already set up a number of stations in California and is looking to its expansion going forward.
Further, the company is offering to recharge Tesla electric cars for free – this will effectively offset Tesla’s high prices, thereby making its cars more attractive to prospective electric vehicle buyers. As a result, there may be a substantial upside to Tesla’s share of the EV market.
From a larger perspective, we think the Supercharger concept is smart and could be used to revolutionize electric vehicles and the auto industry as a whole. If governments and other companies adopt a similar solar energy based vehicle charging technology, there could be a multitude of long-term benefits, including reduced emissions, lower costs, and less reliance on carbon-based fuels.
Liquidity crunch avoided
The company’s cash reserves have taken a tumble this quarter, decreasing to $86 million from $210 million last quarter. This can be attributed to increased working capital requirements to support the ramp-up. Following the announcement earlier this quarter that the production ramp-up was delayed a few weeks and that the Department of Energy (DOE) required an advance payment of its $400 million loan to Tesla, there were fears that the company would be unable to maintain sufficient liquidity to continue the ramp-up. However, based on management’s estimates that the company will finally see cash inflows from operations next quarter, we believe the current cash level is a low point and expect to see a gradual increase in reserves over the next few quarters.
We currently have a Trefis price estimate of $37 for Tesla, which is more than 15% above the market price.