Earnings Review: Tesla On Pace To Meet Its Targets For The First Half Of The Year But Lots Of Questions Still To Be Answered

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Tesla Motors (NASDAQ: TSLA) reported earnings for the first quarter of fiscal year 2017 on Wednesday, May 3rd. The Silicon Valley auto maker has guided for over 50,000 units produced in the first half of the year. In the first quarter, the company produced 25,051 units, an increase of over 64% compared to the same period in the previous fiscal year. On a weekly basis, this means that the company produced around 2,090 units per week, only a shade over 40% of the production rate it needs to meet its target for the end of the year. Tesla wants to produce around 5,000 units per week by the end of 2017 and around 10,000 by the end of 2018. The company is set to start production of the Model 3 later this year and wants to meet its pre-orders by the end of the subsequent year. This requires a significant increase in its production capacity.

Similarly, the company needs to expand the number of super chargers to support the increase in volume of Tesla vehicles owned worldwide. It also needs to increase its presence to support the after-sales service process for these customers, since the company doesn’t follow the usual dealership model and goes directly to consumers. The auto maker has guided that the number of Super charging stations worldwide will increase to around 10,000 and the number of destination charging points to over 15,000 in this year. Additionally, the company’s energy generation business is operational now following the acquisition of Solar City. In the first quarter, Tesla deployed 150 Mega Watts of solar generation capacity and 60 Mega Watt hours  of energy storage capacity.

Operationally, the company continues to grow, albeit from a small base. Its revenue has more than doubled over the past year while its gross margin has expanded by 280 basis points and its operating margin by 12.1 percentage points. On a quarterly basis, its revenue increased by 18%, with gross margin expanding by 570 basis points  and the operating margin by 210 basis points. But the company still continues to lose money as it has to undertake expenses to support the future sales of its vehicles and energy products, which are not tenable at its current levels of operation. Additionally, the company’s capital expenditure also continues to increase as it builds out a new assembly line, scales up production at its giga factory, and tries to integrate Solar City into its business. This puts a lot of pressure on the company’s cash position. In this quarter, the company’s long term debt increased by close to $1.2 billion, but its cash only increased by $600 million, reflecting the high levels of cash burn required by its operations.

tsla q1 17

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tesla Motors

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