The Tesla Motors Inc. Story Accelerates: 6 Key Takeaways From Its Q4 Earnings Report

In what was one of the most anticipated earnings' releases this season, electric-vehicle maker Tesla Motors  (NASDAQ: TSLA  )  crushed quarterly earnings' estimates and provided better than expected 2014 guidance when it released its fourth-quarter and full-year-2013 results after the market close yesterday.

Shares of Tesla soared 11% at today's open, and ended the day up 8.4% at $209.97, an all-time closing high.

First, the highlights of the quarterly results (link opens a PDF):

  • Adjusted earnings were $0.33 per share, considerably higher than the $0.21 analysts had expected.
  • Adjusted revenue rose nearly 150% from the year-ago period to $761 million, topping the consensus estimate of $677 million.
  • Adjusted gross margin was 25.2%, while gross margin on a GAAP-basis was 25.8%

Vehicle deliveries 
Tesla delivered 6,892 Model S vehicles in the quarter, 13% higher than the 6,000 it guided for at the end of the third quarter, and 22,477 vehicles for the full year. These number didn't come as a surprise, as Tesla pre-announced them last month.

The company didn't give a breakdown by region of its vehicles delivered. However, CEO Elon Musk did state during the conference call that deliveries in the U.S. remained fairly steady from the third to the fourth quarter, so most of the increased volume came from Europe. Investors shouldn't take this to mean that demand in the U.S. has significantly slowed. Tesla needed to starve the U.S. in order to feed Europe, given that Europeans who had ordered a Model S had been waiting for a while, as Musk previously has noted.

Gross margin: goal of 25% met 
This was surely one of the key numbers investors homed in on, as Musk has long stated that the company's goal was to achieve a gross margin of 25% (excluding credits for zero-emission-vehicle, or ZEV, sales) by the fourth quarter of 2013. A miss on this metric would have surely disappointed investors and likely resulted in the stock selling off.

Tesla has made steady progress in improving its gross margin, which increased from 14% in the second quarter to 21% in the third to 25.2% last quarter.

To provide some perspective, Ford's gross margin for the trailing-12-month period is 15.5%. BMW and Daimler, which make for better comparisons (at least while Tesla is still focused solely on the high-end market) sport gross margins of 19.9% and 21.5%, respectively.

So, Tesla is doing darn well on the margin front, especially considering that the auto manufacturing business is one which is notorious for its high fixed costs. Tesla's gross margin should further improve, at least slowly, as it benefits from economies of scale.

2014 guidance: clear skies on the horizon 
Tesla expects its gross margin to reach 28% by late 2014. This target is based upon the option uptake decelerating, as Musk noted on the call. So, if folks continue to demand the many bells and whistles they've been buying, Tesla could exceed this number. It's very likely, in my opinion, that Chinese buyers will go gangbusters with options, which should help offset the likely deceleration in option uptake among U.S. buyers.

The company expects to deliver more than 35,000 vehicles in 2014, which would represent a 55% increase over 2013, and is more than the 31,000-32,000 most analysts had been forecasting.

As to production, Tesla anticipates producing about 7,400 vehicles in the first quarter, which is about a 12% sequential increase from the 6,587 it manufactured last quarter. That said, there's a planned considerable gap between this quarter's production and planned deliveries (about 6,400) due to the fact that more vehicles will be in transit for longer periods of time, as they'll be heading to international buyers. Tesla expects its production rate will ramp up to about 1,000 vehicles per week by the end of 2014, up from its current rate of about 600.

The company stated that its battery cell supply will continue to constrain its production in the first half of the year, but will improve significantly in the second half of 2014.

China and Europe outlook: rosy 
The Model S is scheduled to begin shipping to China this spring. There are numerous reasons the Chinese are likely to snatch up the vehicle at a higher rate than even optimistic forecasters are predicting. That's a whole other article; suffice to say for now that Tesla's earnings release included the statement: "Already, the Beijing store is our largest and most active retail location in the world."

As for Europe, where Model S deliveries began last August, Tesla is systematically building out its Supercharger network. It started with Norway, given that Norwegians have the highest electric-vehicle ownership rate in the world, and is now focused on Germany, Europe's largest auto market, which it plans to have completely covered by the end of this year. Coverage for the rest of Western Europe is planned, as per the company's previous earnings release, as follows: "By the end of 2014, we expect that the entire population of the Netherlands, Switzerland, Belgium, Austria, Denmark and Luxembourg and about 90 percent of the population in England, Wales and Sweden will live within 320 km of a Supercharger station."

Model X launch: slight delay 
The sole hiccup in Tesla's report was news its Model X crossover vehicle is now slated to launch in the spring of 2015, rather than in late 2014.

This slight delay doesn't seem like an issue, in my opinion, given Tesla had previously announced that the Model X would have only "limited availability" in late 2014 anyway. Now, a delay of a full year or more might be another matter. The concern wouldn't simply be due to the delayed launch of the X itself, but the resultant push-back effect on the launch of the more affordable third-generation model, dubbed Model E.

The mass-market third-gen vehicle is due to launch in "approximately three years," per Tesla's earnings' release. This vehicle is widely expected to be priced in the $35,000-$40,000 range.

"Giga factory" plans: expect news next week 
Musk deflected most questions about the giga factory during the call, stating that Tesla will be announcing plans on this front next week.

So, we should soon be leaning more about Tesla's plans to construct a factory to produce the lithium-ion batteries it requires to greatly ramp up its production, as it will need to do for the mass-market vehicle. I'd hope for an approximate timeline, location, and partners involved to be included in that announcement.

While I'd not hold my breath about an Apple teaming on this front (as some are speculating), a big-name partner could send Tesla's stock soaring (yet again).

Foolish final thoughts
Tesla had blow-out quarterly earnings, and its rosy forecast bodes well for 2014.

That said, battery supply and costs are key to Tesla's successful production and sales of its mass-market vehicle, slated to launch in approximately three years. So, substantial news about the giga factory will be just as important as Tesla's 2014 guidance for long-term investors, especially given Tesla's sky-high valuation.

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Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 20, 2014, at 9:56 PM, ICanFool wrote:

    Tesla has been clever in other ways, too. It sells credits it receives from the state of California for producing zero emissions vehicles to other automakers that aren’t so clean. At up to $35,000 per vehicle, it’s a windfall that has helped keep the company alive, according to Gartner analyst Thilo Koslowski.

    While true until now, Tesla says those credits will decline as sales spread beyond California and into Europe. In the first quarter, Tesla said credits sold to other automakers amounted to approximately $68 million or 12% of its revenues.

    GM had pulled out of a joint venture with Toyota in Fremont, Calif., after filing bankruptcy and the Japanese carmaker, with huge problems of its own, was cutting U.S. production. Musk was able to snag the massive factory, once valued at $1 billion, for a mere $42 million.

    No doubt, it also helps to be incredibly rich. Musk, luckily, is a billionaire. He pocketed roughly $180 million as a cofounder of PayPal, and helped get Tesla off the ground in 2004 with an initial investment of $6.3 million.

    The $465 million government loan helped, as did Tesla’s initial public offering in 2010, which raised $226 million.

    Today, Musk is worth almost $3.8 billion — $1 billion more than Forbes estimated less than three months ago.

    based on 5/11/2013 Forbes article..

  • Report this Comment On February 20, 2014, at 11:35 PM, Ustauber wrote:

    ThxTsla

  • Report this Comment On February 21, 2014, at 12:50 AM, deeageaux wrote:

    Google "elon musk net worth."

    As of today Elon is worth $9.7B.

    Tesla did not sale any ZEV credits in Q4.

    It did sell $15M in CAFE regulatory credits.

  • Report this Comment On February 21, 2014, at 4:06 AM, Shai wrote:

    too many shorts, Shares Are Too Frothy... Tsla will be 180$ by end of this month.. 150$ in the end of March.. wait and see. same story with MLNX last year

  • Report this Comment On February 21, 2014, at 4:30 AM, Shai wrote:

    btw I would be happy if you could answer my question that bothers me: why TSLA opened in pre market Market plus 3.5%, and decreased? Why all day yesterday it was down to 5%? Why after the reports it fly with 15%, and finally took it to 7% ????

  • Report this Comment On February 21, 2014, at 8:20 AM, drax7 wrote:

    Thanks Beth for excellent article.

  • Report this Comment On February 22, 2014, at 5:00 PM, 68surfer wrote:

    @shai it's called profit taking! There are many investors that had a $200 price target when the PT was reached they took the profits they had made. Cheers.

  • Report this Comment On February 22, 2014, at 6:03 PM, TMFMcKenna wrote:

    @Shai,

    While I'm sure good traders can do quite well trading more volatile stocks, the focus at TMF is on long-term investing.

    I can't know for certainty (and neither can anyone else) whether Tesla will end up a long-term winner. That said, even if the stock price did do as you say -- drop to $180 by month's end and $150 soon thereafter -- that doesn't preclude the company and the stock from going on to be long-term winners.

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