Earnings Review: Tesla Misses Its Delivery Target For 2014 But Upbeat About 2015 Outlook

Tesla Motors (NYSE:TSLA) disappointed investors as it delivered yet another set of underwhelming results. During the quarter, the company’s revenues stood at $957 million, up from $610 million in the fourth quarter of fiscal 2014. The net income loss stood at ~$107 million, or a loss of 86 cents a share. The automaker delivered a record 9,834 vehicles this quarter, but fell short of the guided 11,000 deliveries for the quarter. The company blamed the shortfall of deliveries on “a combination of customers being on vacation, severe winter weather,  and shipping problems (with actual ships).” ^[1] There were some delays to production during the quarter, as a result 1,400 vehicles were only delivered during the first quarter of fiscal 2015. However, even though the company missed its deliveries target for 2014, it met the production target of 35,000 vehicles for the year.

Tesla had introduced a new lease program earlier in 2013. GAAP requires Tesla to spread out the revenues of the cars sold through this program over the lease tenure (i.e. treating these revenues as deferred revenues). Therefore, a better method to gauge the automaker’s performance is to analyze the non-GAAP figures. On a non-GAAP basis, Tesla’s revenues were $1.1 billion, up 44% compared to a year ago. The net income loss stood at $16 million, or 13 cents a share. ^[2]

We have a price estimate of $164 for Tesla, which is about 20% below the current market price. We are in the process of revising our estimates to incorporate the latest earnings.

Outlook For 2015

In 2014, the automaker expected to sell 35,000 Model S cars, helped by higher production rates and expansion into new markets. Due to production delays experienced because of difficulties in transitioning to a new assembly line in the third quarter, the company revised its delivery target for the year to 33,000.  The fourth  quarter’s 9,834 vehicles produced means that Tesla only delivered around 31,800 cars for the year.  Meanwhile, the company has also been working on making its assembly line efficient enough to be able to improve the production rate to 1,000 vehicles a week by the end of this year and 2,000 vehicles per week by the end of next year. ^[3] The company produced a record 11,627 vehicles in the fourth quarter, implying a production rate of roughly 894 vehicles per week. For the full year, the company produced 35,000 vehicles, implying a yearly production rate of 673 vehicles per week. The company expects the production rate and demand to increase in 2015, and guided for a delivery target of 55,000 vehicles in the calendar year, implying a growth rate of 70%. Additionally, the company reported that it had increased the number of stores and service centers by 40% in 2014, and the number of supercharger networks by 400%. The Silicon Valley automaker enters 2015 with 10,000 pre-orders for Model S and 20,000 pre-orders for Model X, which is due for launch later in the year.

To meet its 2015 targets, Tesla will have to increase its delivery rate by about 70% for each quarter compared to the rate this year. The planned introduction of the Model X by the middle of 2015 should help the company in attaining that target, but a lot of it will rely on how quickly it is able to reach the production rate target of 2,000. By our estimates, just about 1,400 of the cars produced in the fourth quarter were only delivered in the first quarter of fiscal 2015, which meant that the lag time between production and delivery came down considerably for this quarter, as just under 80% of the cars produced this quarter were delivered. The company said that it expects the quarterly gap between vehicles produced and vehicles delivered to decline in the future quarters. This is important as some customers, especially in China, have expressed disappointment at the time lag between time of order and time of delivery.  ^[3]

Average Revenue Per Vehicle Corrects

During the quarter, the average revenue per vehicle stood at ~$97,281, implying a decline of about  10% compared to the third quarter. During the first quarter of 2013, the average revenue per vehicle went as high as $115,000, buoyed by sales of ZEV credits, to the tune of $60 million. The reported revenues for the fourth quarter also included $42 million worth of powertrain sales to Daimler and $86 million of regulatory credit, which included $66 million from the sales of ZEV credits. Another reason why the figure was higher during the start of 2013 was because Tesla had primarily delivered its high-end versions first. As the automaker eventually delivered its lower priced options, the average revenue per vehicle witnessed a correction.

See full analysis for Tesla Motors

Impressive Margin Expansion

The automaker’s gross margins improved to 27.4% on a GAAP basis on account of higher revenues from the sale of ZEV credits. On a non-GAAP basis, gross margin stood at 26.7%. Tesla’s gross margins have improved from 17.1% in the first quarter of 2013 to 27.4% in the fourth quarter of 2014, helped by higher volumes and operational efficiencies. Tesla is targeting gross margins of 26% in 2015. ^[3] Auto companies, in their definition of cost of goods, usually include some fixed cost components like labor costs, plant operational expenses, etc. Therefore, as volumes increase, the additional revenues often result in improved gross margins.

However, Tesla also cautioned that administrative and capital expenses will rise significantly as the company scales up its customer support to keep pace with the growing global demand for its products. The company stated that it plans to accelerate the rate at which it opens stores and service centers. Additionally, the company plans to increase its Supercharger network count by 50% in 2015. Superchargers are charging stations installed by Tesla for its customers to charge their car batteries for free. ^[3]

Understand How a Company’s Products Impact its Stock Price at Trefis

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap More Trefis Research

1. Tesla 8-K, SEC [↩]
2. Tesla 8-K, Tesla Investor Relations [↩]
3. Ref: 1 [↩] [↩] [↩] [↩]