How did Tesla Motors, (TSLA -3.40%) do in Q1 2014, and was the company able to hit its projected goals? Let's look at its production, how it's managing its infrastructure expansion, its financials, and how it intends to meet all of its goals, and what all this means for your portfolio.
Big production
Tesla's 2014 outlook was quite optimistic, as it expected to deliver over 35,000 Model S vehicles, amounting to a 55%-plus increase over 2013. Tesla had delivered 6,457 Model S vehicles of the 35,000 expected, which slightly exceeded guidance.
It expected production to increase from 600 cars per week to about 1,000 per week by the end of the year. At earnings, Tesla's factory was able to produce 700 cars per week, a 15% increase form its weekly producing in Q4. This is great news, as the EV maker is still anticipating hitting that 1,000 vehicles per week goal.
Tesla projected that Q1 2014 would see about 7,400 vehicles produced, which was a lofty goal considering Q4 produced 6,587 vehicles. The company actually exceeded that goal by producing 7,535 vehicles. Tesla anticipates producing between 8,500 and 9,000 vehicles in Q2.
Source: Tesla Motors
Drive time
Tesla has been very diligent in making sure that all the infrastructure required to support its fleet is in place, thus ensuring that all of its customers have the very best experience possible. Since its vehicles don't require the same resources as standard fossil fuel fleets, Tesla's stringent focus on infrastructure development ensures that its mitigating it's customer's and shareholder's risk.
This is the year that the Supercharger network in North America is expected to be completed and as of the earnings report, Tesla had implemented 100 Supercharger stations. It plans to open 200 worldwide by the end of the year. It's been working on building out its Supercharger networks in Europe and China as well.
When Tesla began its Chinese deliveries it had three supercharging sites open, and by establishing adequate support within the area, it has been encouraged by how fast the necessary infrastructure (read: large Supercharger network and service centers) could be put in place.
Money on my mind
In its Q4 2013 letter to shareholders, Tesla projected that by Q4 2014 it would achieve an automotive gross margin of 28% (both non-GAAP and GAAP), excluding potential ZEV credit sales. Tesla expected that this margin would only increase slightly in Q1, but that, for the remainder of the year, it would pick up the pace. For Q1 2014, its automotive gross margin was 25.4%, leaving room to grow into that aforementioned expectation at just under 3%.
| Q1 2014 | Increase | |
|---|---|---|
| Automotive gross margin | 25.40% | 20 basis points, sequentially |
| Non-GAAP revenue | $713 | 27% increase yoy |
Tesla's non-GAAP automotive gross margin increase was despite the fact that Tesla had to book an unplanned $2 million reserve for the Model S underbody shields.
Source: Tesla Motors
Tesla expected its operating expenses and capital expenditures to increase substantially this year, as it is working to expand production capacity, invest in its storefronts, service centers, and Supercharger infrastructure. It also accounts for the completion of the Model X development and early design work on the Gen 3. Capital expenditures in the quarter totaled $141 million.
Research and development was projected to increase, as design and engineering for the Model X was anticipated to accelerate in front of prototypes getting on the road at the end of 2014. R&D expenses were $68 million non-GAAP, about a 17% increase over Q4.
SG&A was expected to grow, as Tesla expected to further global retail and Supercharger expansion. It grew to $97 million non-GAAP, which is an 11% non-GAAP sequential increase over Q4.
Source: Tesla Motors
Long story short
Tesla is on track to meet all of its 2014 projections. It looks like it might exceed its 35,000 Model S vehicle goal, if it can increase the pace of vehicles per week. Making that jump will be facilitated by the new, more efficient production line, which is scheduled to come online some time in July.
By implementing this more efficient production line means that the Gigafactory will be able to reach it's maximum manufacturing potential much faster, thus increasing its ability to meet its growing demand. Greater production that meets Tesla's increasing demand, matched with its growing market base means a great deal of profit potential.
The Gigafactory is a double go, as Tesla isn't taking any chances by risking a delay in production after groundbreaking. Instead of settling for just one location, Tesla is opting for two or more groundbreakings, just to be certain that it has a viable contingency plan in place, in case issues arise during factory development. It is in talks with partners other than Panasonic, with which it has a signed letter of intent, in order to ensure that all production and supply chain partners are of the highest caliber.
Tesla's expansion into China is going well, as the biggest problem that it faces is getting the infrastructure built out enough to support its deliveries. There is a huge demand for Tesla in China , but the company won't deliver vehicles unless it has set up the necessary charging stations and service centers in close enough range.
Tesla is one of those companies, that even when its expectations are super high for itself, it doesn't disappoint, it just keeps riding the EV revolution wave.
