Tesla Announces Third Quarter Profit Of $16 Million, Revenues Climb Higher – Shares Off

4 years ago by Jay Cole 38

Tesla's Second UK Store Opened Last Month In A London Mall (via driving.co.uk)

Tesla’s Second UK Store Opened Last Month In A London Mall (via driving.co.uk)

Tesla has announced 3rd quarter result for 2013 and is reporting a $15.9 million dollar profit, or 12 cents per share (ex-items).  The street had been expecting a profit of about 9 cents per share (adjusted) and a 25 cent loss on GAAP.

Shares are trading off after hours by as much as $20.00 or 12% (real-time quote can be found here) as the market is adjusting to the GAAP loss of $38 million or $(0.32) per share – higher than expectations.  Previously in the 2nd quarter the company earned $26 million dollars (adjusted).

Analysts were looking for revenue of about $555 million, up from $50.1 million a year ago, but essentially flat from Q2’s $551 million.  In reality Tesla banked $603 million (non – GAAP) in the past three months.  Throwing out lease-math, and following GAAP, revenue was $431 million – up about 6% against Q2.

Tesla Had Estimated 21,000 Sales For The Model S In 2013 Before Q3 Results Tuesday

Tesla Had Estimated 21,000 Sales For The Model S In 2013 Before Q3 Results Tuesday

But lets get right to the good stuff – sales!  Last quarter the company anticipated the following for Q3 and full year 2013:

“While we expect production to increase from Q2, a considerable number of vehicles produced during the quarter will be in transit to European markets at the end of Q3. As a result, we plan to deliver slightly over 5,000 Model S vehicles in Q3, and remain on plan to deliver 21,000 vehicles worldwide for 2013.”

So how did they do?

Between July 1st and September 30th, the company sold 5,500 Model S sedans, while noting more than a 1,000 went to Europe with any specific regional breakdown, good for about 300-400 more than anticipated.  In total Tesla has sold approximately 15,500 plug-ins worldwide in 2013. (Q1-4,900,  Q2-5,150).

EDITOR’S NOTE: As this is a breaking report – and there is A LOT of ground to cover, this story is being updated/filled out in real time as the numbers come in and the conference call is happening.  Please check back/refresh to get all the up to the minute analysis of Tesla’s 3rd quarter results

Model S "Enhancements" Contributing To An Estimated 25% In R&D Costs Next Quarter

Model S “Enhancements” Contributing To An Estimated 25% In R&D Costs Next Quarter

In truth, sales and demand during Q3 are a difficult thing to get a handle on as Tesla’s Fremont factory just starting producing Euro-spec allocation in Q3.

Unlike selling a car in the US, of which Tesla now says they can take an order and turn it into a delivery in “as little as 4 weeks,” many cars headed overseas have to spend a lot of time waiting on transport, EU certification (and in some cases partial re-assembly) as well as other hurdles.

As for gross margins, Tesla CEO had said last quarter that the company was looking to hit 25% by year’s end, and 19% in this quarter.  In actual fact, Tesla hit 21% in Q3 after showing a gross margin of 13% in Q2 and 5% in Q1 – so the trend is certainly still in the right direction.

Also concerning investors is Tesla’s expecting its Q4 profits to be “about consistent” with the current quarter. Most analysts had expected Tesla to report a Q4 profit of 20 cents per share or better.

First Tesla Model S Arrived In China In October (via Sina Weibo)

First Tesla Model S Arrived In China In October (via Sina Weibo)

What is Missing?

When looking at the release, once can’t help but notice (shareholders certainly have) 2014 production forecasts and sales have been omitted.  Previously, Tesla had guided to a production level of about 41,000 units by the end of 2014 and recent reports have caused some doubts on whether or not that was a realistic level.

Again, looking at a delivery time as quick as 4 weeks for a new Model S order in the US may give some credence to those fears.  During the conference call Musk estimated Tesla had demand for about 10,000 units currently in the US, but they are not actively promoting what they can’t make, so it could be as high as 20,000 if they did so.

Looking Ahead

Tesla is bumping 2013 expectations for sales up slightly to 21,500 car delivered and offered the following in regards to next quarter:

“We are continuing to expand production and plan to deliver slightly under 6,000 Model S vehicles in Q4, which increases our total expected deliveries to 21,500 vehicles worldwide for 2013. ASPs are expected to be relatively flat sequentially as we continue to see a rich mix of options on incoming orders.

Model S gross margin may continue to make slight improvements over the next several quarters as we continue to drive down manufacturing costs. While we expect to achieve our target of 25% non-GAAP automotive gross margin in Q4 (assuming no contribution from ZEV credits), further progress is likely if customers continue to purchase our vehicles with a high option take rate.”

Given Tesla’s history of managing expectations, we look for the company to likely sell about 6,500 cars and to finish out the year with approximately 22,000 Model S sedans sold – an unprecedented result for any electric vehicle sold in the US so far.

ZEV Credits

Tesla has forecasted that ZEV credit revenue was about to fall off the table…and they were spot on.  Only $10 million was realized in Q3, down sharply from Q2 and Q1.

“One of the drivers for the anticipated drop in ZEV credit revenue to $10 million in Q3 from $51 million in the prior quarter was the shift in the mix of sales to Europe and non-ZEV states in the United States.”

  • Q3: $10 million
  • Q2: $51 million
  • Q1:  $68 million
Acceleration Of The Model X Increases Costs In The Short Term

Acceleration Of The Model X Increases Costs In The Short Term

R & D: Model X, Model E

Tesla noted that R&D costs were up this quarter due to the Model X, and will continue to increase in the near future.

“Research and development (R&D) expenses were $48 million on a non-GAAP basis and $56 million on a GAAP basis. R&D spending increased due to the work on Model S right-hand drive and localization efforts for foreign markets. We have also accelerated development work on Model X.”

“R&D expenses are expected to increase sequentially by about 25% in Q4 as we accelerate product development efforts on Model X and Model S enhancements. SG&A expenses are expected to rise sequentially by about 20%, driven by the growth in our retail locations, service centers and Supercharger facilities.”

The third offering (aka Model E) from Tesla will undergo styling and design in 2014

Full financial results and shareholder letter from Tesla CEO Elon Musk can be found here.

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38 responses to "Tesla Announces Third Quarter Profit Of $16 Million, Revenues Climb Higher – Shares Off"

  1. Assaf says:

    Jay,

    Are they giving a by-country unit sales breakdown? If so, has your guesstimate of 3k in the US for the quarter panned out?

    Thanks!

    1. Jay Cole says:

      No country by county breakdown, we will probably find out more on the conference call…it looks like were were light in July by a pretty good margin…like by a thousand.

      Apparently Tesla delivered next to nothing in July in Europe, so all the sales were US-based – when we had it split in half. Will adjust sales chart to reflect today … although we did have total sales for the quarter at 5,500 which was bang on – just in the wrong spots, lol.

      First blush it looks something like 4,000 US 1,200 Europe 300 Canada

      1. Assaf says:

        Thanks Jay! You Rock!

  2. Anthony says:

    “R&D expenses are expected to increase sequentially by about 25% in Q4 as we accelerate product development efforts on Model X and Model S enhancements.”

    Model S “enhancements”? I’m assuming they mean more options like collision avoidance, lane keeping, that sort of stuff.

    1. taser54 says:

      Simply AWD.

    2. T2Y says:

      Unfortunately no mention of ACC or lane keeping or other features normally found on cars in this price range.

      R&D on MS is only for right hand drive and modifications required for international markets.

    3. Benjamin says:

      How about stay off your phone and you won’t need lane assist. Just drive. Jeez

  3. T2Y says:

    The stock is reacting negatively due to:

    A loss of $0.32 a share which was worse than expectations.

    Revenue of $431M which was below expectations of $554.33M.

    1. pjwood says:

      The 431 was GAAP, the 554mm expectation was non-GAAP, as I think Jay means it.

  4. GeorgeS says:

    Jay,
    What items are we leaving out to get from the GAAP loss to the (ex items ) profit.

    1. Jay Cole says:

      Here is what Tesla says:

      “Like last quarter, in addition to GAAP financials, we have presented non-GAAP financials excluding the effect of lease accounting. We believe these non-GAAP financials are useful because they align with the underlying cash flow activity and timing of vehicle deliveries, and we use such information internally for operational management and financial planning purposes. Non-GAAP financials add back deferred revenues and related costs for Q3 cars sold with a resale value guarantee to customers who obtained financing from one of our banking partners. This financing program was very popular in the United States during the quarter, and represented about half the cars delivered in states where the program is available.”

  5. taser54 says:

    Again with Tesla not using GAAP.

    1. T2Y says:

      Sounds better than reporting a loss of $38.5M

    2. Spec9 says:

      Everyone reports both GAAP and non GAAP earnings these days.

      1. taser54 says:

        No. SEC only requires a company that chooses to report non-GAAP to reconcile it with the most comparable GAAP measure. Everyone is NOT doing it.

    3. pjwood says:

      Understand what forced the lease accounting, and you’ll understand there’s no fluff to seeing the non-GAAP as a better way of looking at it. It is certainly better on cash.

  6. Roy_H says:

    GAAP Generally Accepted Accounting Principals.
    So the reported “profit” of $16M is by Tesla accounting, and turns out to be a $38M loss by normal accounting. This is a HUGE spread, and suggests the Tesla accounting is fictitious, that is has no basis in reality. Should not have been in the headline.

    1. miimura says:

      This has been gone over before. Elon said in the past that the non-GAAP figures they report are backed up by actual cash flow. The main reason for the discrepancy is the lease treatment in GAAP rules. Tesla actually gets paid the whole amount for a leased car. However, they cannot recognize all the revenue during the quarter that they deliver the car. This is the primary reason for the big difference between GAAP and non-GAAP in the quarters since the start of the leasing program.

      1. T2Y says:

        GAAP does not allow the entire lease amount to be counted immediately as revenue. According to GAAP, the residual value should be accounted for as debt on the balance sheet, not revenue. It should only be recognized as revenue at the end of the lease when the loan is repaid to the bank, the lessor.

        Counting the entire amount in the quarter the lease started would have the effect of overstating revenue.

    2. GeorgeS says:

      Yeh but sometimes it helps, for example some huge amount of income from a one time sale of say a piece of property which says squat about the biz….so you gotta know what they are counting and what they aren’t counting.

  7. Anthony says:

    Interesting non-financial notes from the call…

    1. Elon’s description of how the accident in Mexico went down.

    2. Tesla’s plan to partner with a battery maker to build a “Giga-Factory”, probably in North America to support gen 3 vehicles. Giga = 1 billion, so this would be a one billion cell per year factory, which would support roughly 200,000-250,000 cars per year depending on number of cells in a pack. Factory would not have substantial permitting issues – would be a very “green” factory (solar power, on-site recycling, pack refurbishment, etc.).

    3. Tesla’s goal is to have a step change in battery performance every 4 years. Small incremental improvements in the mean time, but a step change (which I expect to be around 20-25%) every 4 years, with the next one presumably due in mid 2016. This would likely tie in to #2 above, the factory would be built to use manufacture this step-change cell.

  8. pjwood says:

    RE: GAAP / Non-GAAP
    1. Lease accounting cost them 32mm in Q3, all because they made that buy-back pledge. In order to subscribe to GAAP, you are pricing the probability a used Model S will cost 36k (plus 43% of car-options price), or less. If, like me, you think that is highly unlikely in less than three years, use Non-GAAP. These cars were sold outright, using loans. I’m happy treating it that way, arguing it that way, and congratulating Tesla on breaking 600mm.

    2. Surprised they take all supercharger development off at SG&A, and that they don’t capitalize it in a way that wouldn’t hit profit/loss. The chargers are a multi-year capital asset, that could reasonably have been put to the balance sheet, instead of being expensed.

    3. SG&A also grew a surprise amount (60-77mm), with expansion in Europe, according to a take by Bloomberg auto analyst (not Matt M./Cory J.). Perhaps Bloomberg’s love for Tesla wants to spin this as redundant euro operations, but this could aslo be charger build-out. They don’t itemize how much superchargers are part of the 77mm SG&A expense?

    4. Lastly, Who’s job was it to game the ARB / CARB ZEV sales and judge that this rev stream was going off a cliff?? They guided, but there’s got to be a better way of seeing this coming. Sure enough, I’d bet the widened loss is driving the stock.

    Now, it’s off to the main-steam media’s way of spinning things. Congrats, Tesla on growing units to 5,500 this quarter!!!

    1. GeorgeS says:

      Thx pj,
      you one smart fella.
      So there are valid resons not to look at GAAP like I thought.

      Question:
      Does the lower ZEV credit income affect the GAAP and NON GAAP numbers the same?

      1. pjwood says:

        George,

        I’m pretty sure the ZEV credits are in both “top line” numbers. If you go over to edgar.gov and look up the 10-k, a word seach at least reveals they are in the GAAP number. That also surpised me last quarter, because ~50mm in ZEV works to $10k per car, at ~5k units.

        A critical aspect seperating Tesla’s financing from typical leases is that a typical lease generally puts a car back in the manufacturer/dealer hands, almost like a “put” option where the seller of the option must take it back, if exercised. Tesla’s financing effectively puts the strike price of that put-option beneath a place where people are likely to exercise the option to return the car. The buyers see all the cash flow of borrowing the purchase price leave their hands, and they are the ones who get hurt if the used price (like a residual) goes down to 36k. Tesla only gets hurt if Model S’s can be had for less than 36k (plus SC, 85kwh options, etc) at 39 months. That last part, despite being improbable, is what I believe forced the lease accounting treatment. They may even make money from those with trades who don’t bother to look at the market.

        I would love to write Neil Cavuto some of these put options, but hold the stock instead 😉

        1. pjwood says:

          Ooops, might be 8-k, not 10-k.

  9. pjwood says:

    http://finance.yahoo.com/news/tesla-shares-drop-3q-falls-215536737.html

    “Tesla lost $38.5 million, or 32 cents per share, in the third quarter. Its revenue jumped to $431 million, up 6 percent from the second quarter and up from $50.1 million in the July-September period last year.

    That was far short of the $547.5 million forecast by analysts, according to FactSet. Analysts had been expecting earnings of 8 cents per share. ”

    On what basis could FactSet’s analysts have expected revenue to go from GAAP 401.5mm, in Q2, to GAAP 547.5mm, in Q3? Tesla couldn’t have guided this number, and its way out of proportion with expected unit growth. Are more folks making the GAAP / Non-GAAP error, and falsely judging a disappointment?

    1. Jay Cole says:

      Yeah, they are messed up. With the two sets of accounting standards its easy to do – especially when you are under publisher pressure to get out.

      Here are the comps (GAAP) in 000s:
      Q3: 431,346
      Q2: 405,139

      Non GAAP most expectations where 540-560 million, and Tesla reported 603 million.

      This report (and its effect on the share price) is really all about Q4 being relatively flat and the lack of guidance in 2014 (IMO)

      1. pjwood says:

        You’re too kind, Jay. That was the Detroit AP.

  10. Bloggin says:

    Automotive News: ‘LOS ANGELES — Tesla Motors Inc. posted a net loss of $38 million on $431 million in revenue during the third quarter — a steeper loss on slightly higher revenue than in the second quarter.’

    But that’s the way the game is played being a start up company with so much growth potential globally.

    By comparison:
    Ford had $2.6 Billion pretax profit
    GM had $2.18 Billion pretax profit

  11. Jesse Gurr says:

    Are we going to see an update to the monthly sales chart then?

    1. Jay Cole says:

      …that was so 6 hours ago (already adjusted – just had to move July deliveries from US/Europe split to US – thankfully)

      1. GeorgeS says:

        Where is the updated chart?
        This doesn’t look like it. Still at 800 sales.
        http://insideevs.com/october-2013-second-best-plug-in-sales-month-ever-lead-by-two-unexpected-players/

        1. Jay Cole says:

          Hey George,

          It is updated. It is July that had allocated misplaced and is now adjusted. October at 800 units still holds.

          Musk on call “We have actually had to stop North American demand in order to feed Europe,” expects deliveries to go over 60% outside the US soon. Tesla expects to sell about 6,000 cars in Q4 and right now (ahead of actual numbers coming in across Europe) we have Europe pegged around 1,000-1,200 for last 5 weeks.

          Looking at US deliveries, there seemed to be a bit of a lull/rest in early October, perhaps in relation to the end of quarter deadline on Sept 30th. There seems to be more deliveries scheduled out in November.

          1. GeorgeS says:

            OK thx,
            Could you answer my question above about the effect of ZEV credits on GAAP ve non GAAP?

            Question:
            Does the lower ZEV credit income affect the GAAP and NON GAAP numbers the same?

            1. pjwood says:

              Here’s the definitive ‘yes’, from last night’s letter:

              “Q3 non-GAAP revenues were $603 million, up 9% from Q2, while GAAP revenues were $431 million, up 6% from Q2, despite the drop in ZEV credit revenue. ”

              -also-

              “Excluding ZEV revenue, non-GAAP revenues grew 18% from Q2.”

              So, in each the GAAP/Non-GAAP Tesla includes ZEV in top line, and flows it all the way through. If you want to conclude Tesla’s income is understated, because of the inclusion of the ZEV drop, you are on safe ground.

              I may buy more, but aggree with Jay that Tesla may have needed to put together a more detailed 2014 expectation. For now, it looks like short-sharks, day traders and general media hatred.

              1. Jay Cole says:

                What PJ said….busy morning, got back to the thread late, (=

  12. T2Y says:

    I guess investors weren’t too impressed with the non GAAP “profit”.

    The market circuit breakers were tripped on TSLA and short sales were halted.

    Stock was down $25.64, almost 15%.

  13. offgrid says:

    I made an extremely nice profit with Tesla this year (35/170) but I think the party will be over for a while. Share valuation close to 200 USD was just ridiculous, all a result of the short squeeze and initial enthusiasm of Tesla customers buying (more) shares. Now comes the hard and dangereous work of making the transition to gen 3 (Giga factory = giga recap needed?) while maybe having to manage X sales below expectations. Electric car fan + SUV … I really don’t know. Still I hope Tesla will master the difficult times ahead since I would love to buy gen 3!