Tesla crushed critics’ expectations in 2019, and affirmed bulls’ expectations. The company published a full-year shareholder letter earlier today that was littered with gems. It’s what Tesla fans have been expecting for years, and what Tesla skeptics have deemed impossible or highly unlikely.
The 4th quarter and full-year 2019 Tesla conference call starts in 7 minutes. In my opinion, there’s no better place to listen to it than on CleanTechnica TV (video embedded below). Leading into the call, we also have highlights from the shareholder report and some hypercharts on key Tesla figures.
During the conference call, we will be transcribing questions in real time. Additionally, analyst profile pics, price target history, and recent quotes will add context that will hopefully help many of you digest the news.
From the Tesla shareholder letter, here’s a quick summary of highlights:
- $930M increase in our cash and cash equivalents in Q4 to $6.3B
- $1.0B operating cash flow less capex (“free cash flow”) in Q4
- $359M GAAP operating income; 4.9% operating margin in Q4
- $105M GAAP net income; $386M non-GAAP net income (ex-SBC) in Q4
- Model Y production ramp started in January 2020, ahead of schedule
- Increased Model Y all-wheel drive EPA range to 315 miles from 280 miles
- Record vehicle deliveries of 112,095 in Q4
- Record Q4 storage deployment of 530 MWh; 26% solar growth QoQ
2019 was a turning point for Tesla. We demonstrated strong organic demand for Model 3, returned to GAAP profitability in 2H19 and generated $1.1B of free cash flow for the year. We achieved strong cash generation through persistent cost control across the business.
Our pace of execution has also improved significantly, as we have incorporated many learnings from our experience launching Model 3 in the United States. As a result, we were able to start Model 3 production in Gigafactory Shanghai in less than 10 months from breaking ground and have already begun the production ramp for Model Y in Fremont.
None of this would be possible without strong demand for our products. For most of 2019, nearly all orders came from new buyers that did not hold a prior reservation, demonstrating significant reach beyond those who showed early interest. Amazingly, this was accomplished without any spend on advertising. As more people drive our cars and as the industry rapidly validates electrification, interest in our products will continue to grow.
Higher volumes driven by Model Y and Gigafactory Shanghai, continued improvements in operating leverage, and further cost efficiencies should allow Tesla to ultimately reach an industry-leading operating margin.
In 2019, our revenue growth was positively impacted by a strong increase in vehicle deliveries. Revenue growth was offset by higher lease mix*, Model 3 becoming a larger part of our mix, introduction of the Standard Range trims of Model 3, and adjustments to vehicle pricing. These changes have resulted in a reduction to the average selling price (ASP) relative to 2018. We do not expect ASP to change significantly in the near term, which means volume growth and revenue growth should correlate more closely this year.
We are positioned to accelerate our revenue growth further through increasing build rates in Gigafactory Shanghai and our Model Y production line in Fremont. These production increases will allow for higher total vehicle deliveries and associated revenue.
GAAP gross profit of $4.1B remained essentially flat in 2019 compared to 2018. Volume growth and successful cost reduction efforts were offset by normalization of ASP, mix shift towards Model 3 and a higher lease mix.
Sequentially, GAAP gross margin remained relatively flat in Q4 compared to Q3, while we ramped Model 3 production at Gigafactory Shanghai. While we saw an increase in operating expenses in Q4 (driven mostly by $72M of non-cash SBC expense related to one more 2018 CEO award operational milestone becoming probable), higher gross profit resulted in a 72bp sequential improvement of GAAP operating margin to 4.9% in Q4.
Quarter-end cash and cash equivalents increased by $930M QoQ to $6.3B, driven by positive quarterly free cash flow of $1.0B. Capital expenditures increased sequentially due to investments in Gigafactory Shanghai and Model Y preparations in Fremont.
The production ramp of Model Y started in January 2020. Together with Model 3, our combined installed production capacity for these vehicles is now 400,000 units per year.
The ramp of Model Y will be gradual as we will be adding additional machinery in various production shops. After such expansions are done by mid-2020, installed combined Model 3 and Model Y capacity should reach 500,000 units per year. We will start delivering Model Y vehicles by the end of Q1 2020.
We have been gradually ramping local production of battery packs since late Q4 2019. The rest of the Model 3 manufacturing processes are running as expected. Due to strong initial customer response in China, our goal is to increase Model 3 capacity even further using existing facilities.
We have already broken ground on the next phase of Gigafactory Shanghai. Given the popularity of the SUV vehicle segment, we are planning for Model Y capacity to be at least equivalent to Model 3 capacity.
We are moving forward with our preparations near Berlin, which we have selected as the right place to build vehicles for the European market due to a strong manufacturing and engineering presence in Germany. The first deliveries from this factory are expected in 2021.
Autopilot & Full Self Driving (FSD)
To date, Tesla vehicles have driven over 3 billion miles in Autopilot mode. As our fleet grows, Autopilot miles increase exponentially, adding yet more data to our neural net.
All Tesla vehicles with our FSD computer have been updated with new software that can better detect new details in their environments, allowing us to show various lane markings, traffic lights, stop signs, cones as well as other vehicles and road users. Understanding the environment around a Tesla is key to enabling our cars to react to traffic lights and stop signs and take intersections through city streets. We are currently validating this functionality before releasing to customers, and we look forward to its gradual deployment.
In Q4, we launched premium vehicle connectivity in the US for $9.99 (plus tax) per month. This enables our customers to stream music or videos, browse internet or see live traffic through an embedded connection.
We also introduced in-app purchases, where our customers can buy various software updates, such as basic Autopilot, FSD, acceleration boost and additional premium features. Software will continue to play a growing role in our business model.
Battery & Powertrain
Due to continued engineering progress of the Model Y all-wheel drive (AWD), we have been able to increase its maximum EPA range to 315 miles, compared to our previous estimate of 280 miles. This extends Model Y’s lead as the most energyefficient electric SUV in the world.
For full year 2020, vehicle deliveries should comfortably exceed 500,000 units. Due to ramp of Model 3 in Shanghai and Model Y in Fremont, production will likely outpace deliveries this year. Both solar and storage deployments should grow at least 50% in 2020.
We expect positive quarterly free cash flow going forward, with possible temporary exceptions, particularly around the launch and ramp of new products. We continue to believe our business has grown to the point of being self-funding
We expect positive GAAP net income going forward, with possible temporary exceptions, particularly around the launch and ramp of new products. Continuous volume growth, capacity expansion, and cash generation remain the main focus.
Production ramp of Model Y in Fremont has begun, ahead of schedule. Model 3 production in Shanghai is continuing to ramp while Model Y production in Shanghai will begin in 2021. We are planning to produce limited volumes of Tesla Semi this year.
Energy storage deployment reached an all-time high of 530 MWh in Q4, which included the first deployments of Megapack, our new commercialscale 3 MWh integrated storage system that is preassembled at Gigafactory Nevada as a single unit. Since the introduction of this product, the level of interest and orders from various global project developers and utilities has surpassed our expectations.
In 2019, we deployed 1.65 GWh of energy storage, more than we deployed in all prior years combined.
In Q4, we deployed 54 MW of solar, 26% more than in the prior quarter. Where offered, subscription solar has grown significantly in Q4. With a monthly subscription that can generate income from the first month of usage, there is no reason not to have solar panels installed.
In Q4, we continued to ramp both Solarglass Roof production as well as installations. In addition to Tesla installers, we have also partnered with several roofing companies to support installations to fulfill demand for Solarglass Roof.
After organizing several roofing company training days at our training homes in Fremont, we already demonstrated dramatically shorter installation times versus previous versions of this product. Solarglass tiles are made in our Gigafactory New York, and we are hiring hundreds of employees at this facility.
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