Tesla Financials Strong, Stock Surges Again, But What’s The Story With The Gigafactory?

I joined Tesla’s 4th quarter 2013 financial results conference call last night (yesterday afternoon California time). I actually didn’t even think to report on it since there wasn’t really anything unexpected in there. But hey, how can we skip covering an end-of-year Tesla financials report? I’ll start with the numbers.

• 6,892 Tesla Model S vehicles were delivered in Q4 2013.
• That brought the total year tally to 22,477. (I’ve updated all of my sales spreadsheets now—of course, still having to estimate monthly totals and US vs Europe split.)
• Tesla expects to deliver “over 35,000 Model S vehicles in 2014, representing a 55+% increase over 2013.”
• It is currently producing about 600 cars/week, but intends to get that up to 1,000 cars per week by the end of 2014 (by expanding factory capacity and clearing up supplier bottlenecks).
• For Q1 2014, Tesla expects to produce 7,400 vehicles. However, because it is getting logistics started for transport to Asia (China) and still getting shipment streams rolling to Europe, it only expects to deliver about 6,400 vehicles.
• As far as financials, Tesla saw a net income of $46 million and $0.33 EPS using non-GAAP accounting (which is what it uses for in-house planning), or a net loss of $16 million and $(0.13) EPS using GAAP accounting in Q4. “It is important to note that the differences between GAAP and non-GAAP are primarily due to lease accounting for our resale value guarantee (RVG) and employee stock based compensation as a result of the increase in our stock price last year. With 20 months since delivery of the first vehicles to customers, Model S continues to track to an outstanding residual value, with very few cars available for resale. If current trends continue, the average price of a used Model S should be meaningfully above our resale value guarantee,” Tesla writes.
• In 2013, Tesla saw “almost $2.5 billion in sales on a non-GAAP basis and over $2 billion in sales on a GAAP basis.”
• In Q4, it exceeded its “target automotive gross margin of 25%, achieving 25.2% on a non-GAAP basis and 25.8% on a GAAP basis.”

So, those are the key numbers. As far as some extra commentary, I’ll start with this comment from Tesla: “Please note that Tesla is not trying to achieve the absolute highest possible gross margin, as this would require following the industry practice of charging excessive prices to customers in certain markets, which we believe is inconsistent with building long term loyalty.”

The topic of ripping off customers (or not) in China was an interesting one in the Q&A. Elon seemed to express a genuine moral feeling that it was wrong the way that most auto companies rip off Chinese customers by severely jacking up their prices in China. Tesla has decided not to do so. It is charging the same in China as in the US and Europe, only adding on “unavoidable taxes, customs duties and transportation costs.” That is going to put the Model S in competition with vehicles of a much lower quality, rather than the luxury models it “competes with” today. A questioner asked if Elon thought this would drive Tesla’s competitors to lower their prices, which Elon couldn’t make a guess on but said that he thought they “should” do so. In fact, he was quite emphatic that these companies shouldn’t be taking advantage of Chinese consumers like they do.

And make no mistake, Tesla is expecting big sales in China, as well as stronger and stronger sales in Europe. “Towards the end of the year, we expect sales in those regions combined to be almost twice that of North America.”

Another big topic of discussion was Tesla’s planned gigafactory. Tesla actually has a call planned a few weeks from now about this and didn’t want to say much about the gigafactory on last night’s call. However, that didn’t stop questioner after questioner from asking about it. Clearly, there’s a lot of interest in this massive battery factory that would dwarf any other battery factory on the planet.

Tesla saw a spike in its stock price after the call last night, thanks to the strong sales and financial results the company reported. However, I’d expect an even bigger one in a few weeks when Elon and the Tesla crew unveil whatever is up their sleeves as far as this gigafactory is concerned.

Battery cell supply will remain a production constraint in the first half of 2014, but then should clear up indefinitely.

Oh, yes, and Elon noted that work on the Model X is ramping up and will continue to get more attention throughout the year. “R&D expenses will increase as design and engineering work accelerates on Model X. We expect to have production design Model X prototypes on the road by end of year and begin volume deliveries to customers in the spring of 2015.”

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