Tesla has published its 4th quarter 2018 shareholder letter. We will pick apart the details and add our own commentary and extra context soon. In the meantime, click here to read the full thing and below are the summary points (via Tesla).
- Q4 operating income stable compared to Q3 at $414M, operating margin of 5.7%
- Operating cash flow less capex improved from Q3 to $910M in Q4
- Cash and cash equivalents of $3.7B at Q4-end, increased by $718M in Q4
- Q4 GAAP net income of $139M impacted by $54M non-cash charge
- Model 3 GAAP and non-GAAP gross margin remained stable at >20% in Q4
Last year was the most pivotal year in Tesla’s history. During our Model 3 production ramp, we went through significant challenges with the battery module line at Gigafactory 1 in Nevada, and later with our general assembly line in Fremont. Thanks to the hard work and ingenuity of our manufacturing teams, by mid-2018 we successfully overcame these challenges and stabilized Model 3 production at high volumes. Model 3 then went on to become the best-selling passenger car in the US in terms of revenue in both Q3 and Q4. With nearly 140,000 units sold, Model 3 was also the best-selling premium vehicle (including SUVs) in the US for 2018 – the first time in decades an American carmaker has been able to secure the top spot.
Model 3’s success has carried over to our financial performance in Q3 and Q4 of 2018. Operating income in Q4 remained stable at $414 million despite a sequential decline in revenue from the sale of regulatory credits, higher import duties on components from China, a price reduction for Model S and Model X in China, and the introduction of a lower-priced mid-range version of Model 3. Our operating margin also improved significantly in the second half of 2018, changing from being negative to on-par with other premium carmakers. Despite margins in the automotive industry typically being lower in Q4, that was not true for us as our operating margin remained strong at 5.7% in Q4. Our GAAP net income of $139 million was impacted by a non-cash charge of $54 million attributable to non-controlling interests. Free cash flow (operating cash flow less capital expenditures) also improved sequentially in Q4 to $910 million. In the second half of 2018, our cash position improved by $1.45 billion despite the scheduled repayment of a $230 million convertible bond in Q4. We have sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019.
In 2019, full-year Model 3 volumes will grow substantially over 2018 due to a full year of high production rates at our Fremont facility. Also, by the end of this year we are expecting to start producing Model 3 vehicles at our Gigafactory Shanghai using a complete vehicle production line. We expect the capital spend per unit of capacity for this factory to be less than half of that of our Model 3 line in Fremont. Additionally, this year we will start tooling for Model Y to achieve volume production by the end of 2020, most likely at Gigafactory 1. All of these activities are setting us up for very significant annual growth in 2019 and beyond.
Again, the full letter is here.
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