Tesla (TSLA -3.40%) stock is up about 7% in after-market hours after reporting third-quarter results. While the financial results for the quarter came in close to expectations, the company's increasingly optimistic outlook for 2015 and beyond is likely the biggest reason for a rise in share price. Here's what you need to know.
Tesla's fully electric Model S is currently the only model in its lineup. Model S sales, therefore, are the key driver behind Tesla's financial results. Image source: Tesla Motors.
Financial results
Analysts, on average expected Tesla to report non-GAAP sales of $889 million. Tesla beat expectations with non-GAAP sales of $932 million. But after factoring out Tesla's $93 million in regulatory credits, including $76 million in zero emission vehicle, or ZEV, credits that were "much higher than expected," revenue was probably a bit short of expectations. At about 10% of revenue, up from about 2% of revenue in Q3, it's likely that without the unexpected upside in regulatory credits that Tesla may have slightly missed revenue estimates.
Tesla's non-GAAP EPS was $0.02. Again, while this was higher than expectations for a loss of $0.01 per share, the upside is attributable to higher than expected regulatory credits.
Deliveries
Tesla delivered 7,785 vehicles, 15 vehicles short of its guidance for 7,800. Reflecting the company's rapid growth, this number is a record for Tesla and is up 42% from its 5,500 vehicle deliveries in the year-ago quarter. The majority of vehicles, Tesla said, were delivered in North America.
Tesla has lowered its full-year guidance for vehicle deliveries to 33,000 from 35,000. Tesla says this is because of a production deficit of 2,000 vehicles going into Q4 that that was due to "system integration challenges" as it attempted to ramp to its target production rate.
Longer-term, however, Tesla showed great confidence in the demand and delivery trajectory for its flagship Model S.
"[W]e expect our annual production will increase by over 50% in 2014, again in 2015 and probably for several years to follow," Tesla said in its third-quarter letter to shareholders. Seeming to anticipate protest from auto industry veterans in such a prediction, Tesla followed with another statement. "This is unusual in the car industry."
Other key updates
Model X: After deciding to "build in significantly more validation testing time to achieve the best Model X possible," Tesla now expects Model X deliveries to start in Q3 of 2015, which is a few months later than Tesla previously expected. The company has delayed deliveries of the Model X multiple times, originally predicting first deliveries to begin in 2013.
Model S and prototype of Model X. Image source: Tesla Motors.
Gigafactory: Tesla has already started to pour concrete for the foundation of its Gigafactory. More importantly, the company now predicts to begin the first cell production in 2016, which is slightly earlier than the 2017 timeframe Tesla shared initially when it announced plans to build the factory.
"Starting operations earlier will reduce ramp-up risks for Model 3 and provide some potential expansion capacity for Model S and Model X," Tesla explained in the letter to shareholders.
Demand: During the earnings call, Tesla CEO Elon Musk again attempted to emphasize that demand is not an issue for the company -- an idea that the media continues to struggle with. Even orders, he said, are not a reflection of demand since the company isn't putting any noteworthy efforts into driving up demand.
Given Tesla's very forward-looking valuation based on its rapid growth trajectory, the company's confidence in its longer-term future and Tesla's ability to ramp up production on a year-over-year basis are key to understanding the company in relation to its stock price. Over all, both of these items are looking as solid as ever -- if not better. While this doesn't automatically make the stock a buy, continued execution and management's confidence in its growth trajectory make Tesla stock worth holding on to for current shareholders.
