Tesla Motors, Inc. Hit It Out of the Park, As Expected

How did Tesla Motors,  (NASDAQ: TSLA  ) 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.

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Read/Post Comments (10) | Recommend This Article (11)

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 May 21, 2014, at 1:53 PM, nonqual wrote:

    Why does Tesla report revenue for Superchargers as Auto Sales and expense for Superchargers as S&GA?

  • Report this Comment On May 21, 2014, at 2:30 PM, pondee619 wrote:

    Tesla gets revenue from Suerchargers? I thought they were no charge (ha ha) for Tesla owners.

  • Report this Comment On May 21, 2014, at 2:49 PM, dlwatib wrote:

    Tesla doesn't get revenue from superchargers. It's a free service provided as an inducement to buy a Tesla. For the 85kWh Model S, it is a standard feature included in the price. For the 60kWh Model S it is an extra cost option that can be added at any time after you buy the car, just like an extended warranty or prepaid service plan. When and if Tesla does receive revenue from other manufacturers that want to provide supercharging for their customers, it will be accounted for as royalty payments.

  • Report this Comment On May 21, 2014, at 4:02 PM, NCIC wrote:

    Nice article. I expect Tesla will be one of those slow rising stocks that will have huge value in 5 years. I guess I'll just sit and wait.....

  • Report this Comment On May 21, 2014, at 4:20 PM, Mkhost wrote:

    I think the supercharging option costs $2,000 up front on the 60kWh Model and $2,500 to add it later if I remember right. Hopefully Tesla will continue doing it this way with the Model X and gen 3. It seems like the best way to fund a supercharger network as most people will probably pay up front.

  • Report this Comment On May 21, 2014, at 11:48 PM, crca99 wrote:

    Your editor is allowing a lot of it is, it's, and its sentence construction with at least four misplaced apostrophes. "It makes it" hard to concentrate. Just hoping you wanted to know that.

  • Report this Comment On May 22, 2014, at 12:00 AM, crca99 wrote:

    45 combinations of it. I had to go back and see if I was being unfairly judgmental.

  • Report this Comment On May 22, 2014, at 9:13 AM, nonqual wrote:

    " For the 85kWh Model S, it is a standard feature included in the price. For the 60kWh Model S it is an extra cost option that can be added at any time after you buy the car"

    You just confirmed the revenue is reported as auto sales. Now, explain where all those demand fees and consumption charges from local utilities are reported. " Running free on sunlight forever" is a hoax. Hawthorne and several others may have covers with solar arrays, but they are woefully inadequate to supply sufficient power for moderate recharging use. Why isn't the roof at Fremont covered with panels? If you want environmentally friendly auto manufacturing, watch the videos of VW's plant in Tennessee.

    Tesla is mismatching revenue and expense. In addition, the revenue is received up front, the liability for the expense extends for the life of the vehicle. No one worried much about Enron's accounting when it began disrupting investor owned utility dinosaurs

  • Report this Comment On May 22, 2014, at 11:38 AM, countrarian wrote:

    Aside from sales growth and future guidance in their present core markets they crushed it.

    If by hitting it out of the park you mean deep in foul territory then the author is onto something. Otherwise, this is yet another joke of a pump article.

  • Report this Comment On May 22, 2014, at 1:06 PM, dlwatib wrote:

    Yes, crca99, you are being being unfairly judgmental. The author made very few grammatical and spelling mistakes. She wasn't perfect, but then nobody ever is. Get over it.

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