Reviewing Tesla’s Q4 Results And 2018 Outlook

Tesla (NYSE:TSLA) published its fourth-quarter results on Wednesday, posting a smaller than expected loss while indicating that the production of its mass-market sedan, the Model 3, remained on track. The company’s fourth quarter revenues stood at $3.3 billion with its adjusted loss standing at $3.04 a share. Below, we provide some of the key takeaways from the company’s results for the quarter. We have also created an interactive dashboard analysis outlining the performance and expected Q1 2018 earnings.

Model 3 Will Ramp Up, But Luxury Vehicles Could See Flat Sales

 During the quarter, Tesla delivered 28,425 Model S and Model X vehicles, marking an increase of about 28% on a year-over-year basis, while deliveries of the Model 3 stood at 1,542. While overall deliveries will improve this year, with the company holding on to its most recent Model 3 production guidance (2,500 Model 3 cars a week by the end of Q1 and 5,000 a week by the end of the second quarter), its luxury vehicles could have a more mixed year. Tesla projects roughly 100k deliveries of its premium Model S and X vehicles, implying that sales could essentially remain flat from 2017’s figure of 101k cars. That said, Tesla’s revenue growth rate over 2018 is expected to exceed last year’s growth, driven by both the Model 3 and its energy storage products.

Gross Margins See Pressure On Model 3 Ramp

Tesla noted that its non-GAAP automotive gross margin (which exclude stock compensation and ZEV credits) declined to 13.8%, marking a decline of over 8% from a year earlier and almost 5% sequentially. The company said that this was largely due to a slower than expected ramp-up of the Model 3, with the full operating costs and depreciation making the gross margins for the product negative. While Tesla said that it remained focused on achieving its target of 25% gross margin for the Model 3 after production stabilizes at 5,000 cars per week, we believe that overall gross margins could remain under pressure in 2018, as sales of Tesla’s luxury vehicles remain somewhat stagnant.

Cash Burn Remains High, Not Accounting For One-Time Items

Tesla burned through around $277 million in free cash over Q4, marking a significant improvement over recent quarters. However, much of the improvement was due to customer deposits for its upcoming semi-truck and roadster, which boosted operating cash flows. Additionally, Tesla’s move to cut back on production of the Model X and S over Q4 led to finished goods inventory drawdowns, which further freed up cash. However, we expect Tesla’s cash burn rate to remain high over 2018. The company expects its 2018 capital expenditures to come in higher than its 2017 expenditures (~$3.4 billion) as it increases production capacity at its Gigafactory in Nevada and in its Fremont plant.

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