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The Tesla Q4 report has upsides and a few humbling nods to the skeptics.


Did The Tesla Q4 Report Satisfy Skeptics’ Concerns?

The Tesla Q4 report has upsides and a few humbling nods to the skeptics.

The Tesla Q4 report points to 2018 as “a transformative year” for the all-electric company, which is “on the cusp of a step change in the world’s transition to sustainability.” Those statements were part of a letter to shareholders and subsequent conference call after SEC filing of Tesla Q4 results. Its revenue of $3.29 billion exceeded the previous year by $10 million. The company had a cash balance of $3.4 billion entering Q1 2018. Shares of Tesla were still in positive territory in trading, up 1.27% to $349.44 at the time.

But were the skeptics appeased?

It’s hard to say, as much negativity and hand-wringing preceded the Tesla Q4 report. It had been a week in which the stock market experienced historic plunges on Friday and Monday. Volatility led industry analysts to perseverate on production updates that overshadowed the Tesla Q4 numbers. The naysayers moaned that Model 3 production has progressed at a linear rather than exponential growth rate. Model 3 quality concerns persisted, too, with dismay over execution expectations, including production, deliveries, and margins.

Would the company’s new compensation deal with CEO Elon Musk affect earnings? Would a capital raise be around the corner? Would camera plus radar and other sensors but no Lidar be enough for the autonomous driving system Tesla currently uses?

Let’s look at the Tesla Q4 report and see what the numbers said, with a little Elon Musk clarification thrown in for fun.
Tesla Q4

Takeaways from the Tesla Q4 & Full Year 2017 Update

  • Deliveries for 2018 totaled 28,425 Model S and Model X vehicles and 1,542 Model 3 vehicles, or 29,967 deliveries.
  • Combined Model S and Model X net orders in Q4 were just shy of Q3’s all-time high.
  • Tesla expects to begin generating positive quarterly operating income on a sustained basis in 2018.
  • The company has expectations for 5,000 Model 3 units per week for Model 3 by the end of Q3 2018.
  • Model 3 suppliers and customers have continued to be “great partners and advocates,” patiently waiting as the production ramp continues to accelerate.
  • Tesla service capacity more than doubled in 2017, partially due to new locations, but also through a 50% increase in productivity of existing service locations and expansion of a Mobile Service fleet, which now has 230 vehicles.
  • In 2017, 338 new locations opened for a total of 1,128 Tesla Supercharger stations globally.
  • The company will experience a “50% annual growth rate,” according to Tesla CEO Elon Musk.

Tesla Q4 Leads Company to Admit to Some Performance Weaknesses

Tesla isn’t without its problems. The company came clean in its February 7, 2018, letter, acknowledging that the company:

  • “learned many lessons from the slower than planned production ramp of Model 3;”
  • has Model 3 net reservations that “remained stable in Q4” despite the delays experienced in its production ramp;
  • “is taking many actions to systematically address bottlenecks and add capacity in places like the battery module line;”
  • has “Powerwall demand for home energy storage” at levels “consistently above production levels;”
  • “solar MW deployed declined as volumes continue to be impacted by our decision to close certain sales channels earlier this year and to focus on projects with better margins;”
  • with demand outpacing production, Tesla expects the “backlog (of Solar Roof tiles) to remain in excess of one year for the next several quarters.”

Looking Ahead to 2018 for Tesla

Skeptics continue to deride plans for the Tesla Semi, the long- and short-haul vehicle for transporting goods. Tesla will be the first Semi customer, as the company plans to use the Tesla Semi for its own logistics by transporting Model 3 components from Gigafactory 1 to Fremont. The Tesla Semi is planned to combine a real-world range of up to 500 miles with ability to pull a standard payload and will be a semi-tractor that is optimized for coast-to-coast transportation.

The Semi’s torque is designed to enable smooth acceleration to highway speed when fully loaded with cargo and may even improve safety not only for the driver and cargo, pedestrians, and other cars on the road. But would be the braking be too much for the Semi to absorb? Musk responded during the quarterly conference call that the energy ratio that is needed for range means that the Semi will automatically have the capacity for acceleration and braking. “The way that the chemistry works is that for short periods of time you are able to extract energy,” Musk explained, “essentially using ion migration from the outer surface.”

Skeptics also dismissed the Tesla boast that it would conduct a coast-to-coast autonomous vehicle run in 2018, highlighting that it was rehashed from an earlier target and was unlikely. Musk was quoted in 2017 as saying, “Our goal is, and I feel pretty good about this goal, that we’ll be able to do a demonstration drive of full autonomy all the way from LA to New York, from home in LA to let’s say dropping you off in Time Square in New York, and then having the car go park itself, by the end of next year. Without the need for a single touch, including the charger.” That didn’t happen. Will it in 2018?

Tesla says it “will showcase a major leap forward for our self-driving technology” this year. Musk said in the post-report conference call that a changing environment requires “passive optical” rather than “active optical/ Lidar (Light Detection and Ranging)” to achieve autonomous driving goals. Tesla’s neural net is to expand as the company’s customer fleet grows, which enables more high-quality data collection and analysis than previously. Part of that overall goal will be a series of new Autopilot features in 2018 and beyond.

Musk snuck in the statement that Tesla’s upcoming shared autonomy fleet will be a little like Uber and a little like Airbnb and will be a “pretty significant opportunity.”

“As we see people upgrading to full self-driving capability,” Musk allowed, level 2 autonomy will also be able to offer easy swap-out of the computer system, which will meet regulatory standards. To get to the place where cars drive “better than humans,” Autopilot will require upgrades, and this full self-driving capacity will cost an extra $3,000 to $5,000.

In 2018, Tesla expects major growth in energy storage deployments, with production ramp of storage products as steep as with Model 3 that could deploy at least 3 times the storage capacity of 2017. Deployment of 129 MWh of energy storage in South Australia will be recognized in Q1 2018 based on commercial transfer of the site to the customer. And, when fully scaled, the Gigafactory 2 is projected to be able to produce enough solar cells to add more than 150,000 new residential solar installations every year.

And Were the Skeptics Satisfied with the Tesla Q4 Report?

There will always be Tesla skeptics, and some make excellent observations. But it seemed as if even the most hardened skeptics got a laugh when Musk noted that, if a Roadster is heading to the Asteroid Belt after a boost from a SpaceX rocket, Model 3 production headaches should be able to be solved. We’ll have to await the new Tesla earnings report or positive monthly sales updates to find out.

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