Right after the market close today, Tesla released its Q2 2019 earnings letter, and it was a mixed bag. Clearly, the stock market was disappointed and was hoping for a surprise profit after Tesla announced record deliveries a few weeks ago. I’ll highlight a few things I noticed in the letter and we will have more in-depth analysis after the call with Tesla. Make sure you catch our livestream, which is the place to listen to the call either during it or afterwards.
- Tesla continues to make progress on Enhanced Summon and it is currently in limited deployment through the Early Access Program (the last stage before wide release).
- Tesla continues to make progress on stopping at stop signs and traffic lights and are running this software in “shadow mode,” comparing the software’s decisions to the decision of human drivers “across tens of millions instances around the world.” This is something no other automotive manufacturer or autonomous driving technology company has the capability to do at this scale.
- The Gigafactory 3 in Shanghai, China, “will be a simplified, more cost-effective version of our Model 3 line with capacity of 150,000 units per year – the second generation of the Model 3 production process.”
- Tesla claims Model 3 Average Sale Prices (ASPs) are stable on Page 1. On Page 3, they claimed ASPs declined. Hope this is addressed in the call.
- It is impressive that research and development and selling expenses were both lower than the first quarter and substantially lower than a year ago. Amazing for a company growing as fast as Tesla while showing excellent cost control compared to what we have seen in the past.
- Margin before regulatory credits improved 2% (quarter over quarter) but declined by 1.25% after credits because they recognized $104 million less in credits than they did last quarter. It is unclear why the large sale of credits to Fiat hasn’t been recognized.
- Adding the cash raised mid-quarter to the cash on hand at the start of the quarter and the cash generated by the business, Tesla ended the quarter with almost $5 billion in cash and cash equivalents, the most the company has ever had.
- Tesla believes it has reached scale, so it can self-fund additional growth. Of course, Elon Musk said the same thing last year and ended up doing a capital raise in the second quarter, so we shall see if it is accurate this time.
- Tesla reaffirmed volume guidance of 360,000 to 400,000 vehicles deliveries for 2019.
- Tesla continues to expect the current quarter to have positive GAAP net income. Although, the company made it clear that “continuous volume growth, capacity expansion and cash generation will remain the main focus.”
- Tesla continues to reduce the expected capital spending for 2019 down to $1.5 billion to $2 billion, down $500 million from the first quarter letter, as it continues to “find opportunities to improve capital efficiency and shift cash outflows to future periods.”
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