Tesla just released its Quarter 3 2016 shareholder letter, providing a lot of good news with regard to the company’s performance. In addition to the letter revealing that Tesla has achieved its first quarterly net profit in more than 3 years, it also noted that the company achieved record vehicle production, delivery, and revenue figures during the quarter.
Altogether, the company reported a GAAP revenue of $2.3 billion, a 145% year-on-year rise as compared to Quarter 3 2015. Gross margin during the quarter was 27.7%, up from Quarter 2 2016 when it was 21.6%. $2.15 billion of the revenue (GAAP basis) figure above was automotive, representing a roughly 152% year-on-year increase from Quarter 3 2015.
The vehicle delivery count for the quarter was 24,821 — actually over 300 more than the estimated delivery figure provided by the company at the beginning of the month. That represents a 114% year-on-year increase from the same quarter of 2015. These figures relate to 16,047 Model S deliveries and 8,774 Model X deliveries. At the end of the quarter, there were 5,065 vehicles in transit to customers, which will be delivered during Quarter 4, the shareholder letter also revealed.
Notably, demand during the quarter remained strong despite the company ending its resale value guarantee offer in the US. The company was asked to repurchase less than 2% of the vehicles eligible for buyback under the program during Quarter 3.
Quarter 3 2016 saw combined net orders for the Model S and Model X grow 68% year on year, as compared to Quarter 3 2015.
Vehicle production figures also hit all-time highs in Quarter 3 2016 — with a total of 25,185 vehicles being manufactured during the quarter. This number represents a year-on-year increase (as compared to Quarter 3 2015) of 92% and a 37% increase from the previous quarter (Quarter 2 2016).
Total Quarter 3 GAAP automotive gross margin was 29.4%. Non-GAAP automotive gross margin was 25% (excluding SBC and $139 million in SEV credit revenue). The increase in non-GAAP automotive gross margin (140 basis points) was largely down to higher production volume and improved manufacturing efficiency, according to the company.
Notably, average Model S sale prices decreased 6.5% during the quarter, largely owing to the introduction of the 60 kilowatt-hour (kWh) options and the fact that 100 kWh variants didn’t begin production until the end of the quarter. Of the 6.5% figure, 2% or so was related to price adjustments made to inventory cars with mileage on them, showroom cars, and vehicles with old fascia. Model X average sale price decreased as well, around 1.2%, due to the increased production of lower-priced variants (as compared to the top-end Signature builds that dominated earlier production).
The shareholder letter provides some more numbers and perspective:
“Q3 Services and other revenue was $150 million, up 78% from Q3 2015 and up 70% sequentially from Q2. The increase was primarily due to higher sales of used vehicles and stationary storage products. Q3 Services and other gross margin was 3.4%, up from 2.5% in Q2, and generally in line with our expectations. Total Q3 GAAP operating expenses were $551 million, including $81 million of SBC. After excluding SBC, non-GAAP operating expenses were $471 million, up 4% from Q2. GAAP research and development expenses were $214 million, including $40 million of SBC. Excluding SBC, non-GAAP research and development expenses increased 10% sequentially to $174 million, as vehicle development programs accelerate. GAAP sales, general and administrative expenses were $337 million, including$41 million of SBC. After excluding SBC, non-GAAP sales, general and administrative expenses of$296 million were up 1% sequentially, demonstrating our efforts to increase operating leverage.
“Our Q3 GAAP net income was $22 million, or $0.14 per share on 157 million diluted shares, while our non-GAAP net income was $111 million, or $0.71 per share on a diluted basis, after adding back $90 million of SBC. Both figures include an $0.08 per share loss of other expense, net, primarily related to foreign currency transactions and the conversion of most of our 2018 convertible notes. Our cash flow from operations during the quarter was $424 million due to increased sales, coupled with careful expense management. Free cash flow was $176 million as we invested $248 million in capital expenditures to increase production capacity, accelerate Gigafactory construction, and expand customer support infrastructure.”
Importantly, the company’s capital expenditures apparently remain on plan to reach and annual production capacity of at least 500,000 vehicles in 2018.
Thanks to strong cash inflows from a variety of places, Tesla managed to reduce the balances on its borrowing facilities by around $178 million during the quarter, and also to settle $422 million of conversions on its 2018 convertible notes.
With regard to outlook, the shareholder letter states that the company is still expecting 50,000 new vehicle deliveries during the 2nd half of 2016. Guidance for Quarter 4 2016 is 25,000 units, despite the usual difficulties with winter deliveries. The outlook also notes that, as previously guided in the Quarter 2 update, the company still expects a 2–3% improvement to automotive gross margin (on both GAAP and non-GAAP basis) by the end of the year.
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