Tesla reports Q2 2016 earnings: Revenue in line, earnings miss

Tesla reports Q2 2016 earnings: Revenue in line, earnings miss

Tesla Motors reported its 2nd quarter earnings after the bell on Wednesday; and as always, the investor focus ultimately was on the "where are we going from here" part of the report, although the "what just happened" part is still the topic of the day.

4,638 Model X SUVs were sold in Q2

4,638 Model X SUVs were sold in Q2

For the quarter Tesla reported revenues of $1.56 billion, which was in line with most expectations right around the $1.6 billion mark, up 31% from a year ago.

Losses for the quarter however came it steeper than expected at an adjusted $1.06 per share ($150 million)

As for Q2 deliveries, which the company had earlier reported missing sales expectations of around 17,000 vehicles, by selling just 14,370 EV during the quarter; that has now been revised up slightly to 14,402 (1,132 of them being leased); consisting of 9,764 Model S sedans and 4,638 Model X SUVs.

Gross margin stood at 21.6% (GAAP) and 20.8% on a non-GAAP basis.  Automotive margin came in at 23.1% (GAAP), ex-ZEV revenue (non GAAP), the number was 21.9%.

Looking ahead Tesla states that it "...expects GAAP and non-GAAP Automotive gross margins excluding ZEV credits to increase by 2-3 percentage points through Q3 and Q4."  However, we do feel it necessary to note that original guidance was for a level of 30% to be achieved by the end of 2016.

Production & 2nd Half Delivery Guidance

Tesla acknowledges "significant challenges" in the first quarter and entering Q2 with getting production up and running how they would like, but that is reportedly behind the company now.

Production finally eclipses the fables

Production finally eclipses the fables "2,000 per week" level

"We exited Q2 consistently producing nearly 2,000 vehicles per week and our total Q2 production of 18,345 vehicles constituted a new quarterly production record, up 18% from Q1 and up 43% from Q2 last year."

From conference call (Musk): The CEO adds some color to Tesla's official statement: "We were in production hell for the first six months of this year"

With confidence in the refined production process, that also netted less "production hours per vehicle" at the end of Q2, Tesla says they are on track to "support about 50,000 deliveries in the second half of this year,  with automotive gross margin improvement."

Which of course translates into a full year sales prediction close to 80,000 vehicles:

Q1: 14,810 Q2: 14,402 Q2/Q4: ~50,000

Total: 79,212

Tesla says it hopes to be producing the Model S and X at a rate of 2,200 units per week (combined) by the end of Q3, and at a level of 2,400 per week in Q4.

From conference call (Wheeler CFO): "clearly disappointed in our delivery numbers"

From conference call (Musk CEO): Tesla CEO confirms current run rate at 2,000 EVs per week right now, says that the current production split between Model S and X is about 50/50.

Tesla Model 3 - Now In Design Lockdown, Some Production Equipment Already Online

Tesla Model 3 - Now In Design Lockdown, Some Production Equipment Already Online

Tesla Model 3

Ok, now for the "sexy" part of the earnings report.

Tesla says that the "pencil's down" moment has actually been passed, as the company has completed the design phase of the Model 3, as well as released the car for tooling, production planning and validation.

Further still, Tesla states that "some Model 3 production equipment is already on line, including initial capacity in our stamping and paint centers. Later this year, we plan to begin construction of new Model 3 body and general assembly centers."

From conference call:  Tesla is asked on Model 3 reservation total and recent controversy if the number is 373,000 as before or lower.  Tesla stands by the 373,000 number without an update/further info "in terms of disclosure" as per CFO Jason Wheeler

From conference call (Musk): On the July 1st production goal. Musk again tries to explain the fuzzy logic of the date, saying it is internal and for suppliers.  Musk states that "the deadline (normally) would be under wraps" but isn't because of the high profile nature of the company.  Musk re-iterates that actual production will kick off at some point after July 1st.

Demand for Tesla products up 67% in Q2 (InsideEVs/Alex Wai)

Demand for Tesla products up 67% in Q2 (InsideEVs/Alex Wai)

Tesla Product Demand

Despite not being able to

Despite not being able to "show" the refreshed Model S/60 kWh cars for much of the month, orders still came in

Apparently the new base 60 kWh trim levels of the Model S and X were a big hit, with the company stating orders surged in Q2.

"With the addition of Model X orders, total Q2 net new vehicle orders rose 67% from a year ago."

Tesla did not split out order demand between the sedan and the SUV, but noted that Model S orders were still higher despite having no "refreshed" Model S vehicles to show off in stores for the full quarter - and none at all internationally until June.

"Model S average prices increased 3% sequentially, due to higher option take rates and the modest price increase associated with the Model S refresh. Model X average prices were more than 15% higher than for Model S, despite declining sequentially as mix shifted away from Signature Series variants."

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Resale Value Guarantee Discontinued in North America

As we reported earlier this month, the long-standing RVG (resale value guarantee) program ended in the US and Canada in June.

"Introduced in 2013, our resale value guarantee (RVG) helped reassure customers that Tesla vehicles would retain value over time.

Since both our new and pre-owned Tesla vehicles are selling well, we discontinued the program in North America. We still offer an RVG when it can help lower customer monthly payments in certain international markets that have less compelling financing options."

Tesla Boutique Store In Sydney

Tesla Boutique Store In Sydney

Retail Expansion

Tesla Gallery In Houston, Texas (InsideEVs/Josh B)

Tesla Gallery In Houston, Texas (InsideEVs/Josh B)

Seen as part of the core of the Tesla business, the company is focusing on expanding its retail presence in a big way during the 2nd half of 2016, saying that they plan to add a new boutique store every 4 days between now and the end of the year.

"We are adding stores in new population-dense markets like Taipei, Seoul, and Mexico City, while also adding stores in our most mature markets like California."

Tesla adds the stores of tomorrow are superior to those set up in the past.

"The quality of our new locations is also improving as many shopping malls now consider us the new standard for an anchor tenant based on the amount of foot traffic that we draw and our very high revenue per square foot."

Tesla Gigafactory dimensions expressed as only Tesla can

Tesla Gigafactory dimensions expressed as only Tesla can

Gigafactory Update

Given that the Gigafactory's grand opening was only a few days ago, and we were treated to a full tour of the facility (watch the tour here), as well as a speech by CEO Elon Musk and CTO JB Straubel  (presentation here) on all the workings/progress of the factory, there wasn't much new to report.

"Gigafactory construction remains on target to support volume production of Model 3 in late 2017, and we recently accelerated construction to reach a rate of 35 GWh/year of cell production in 2018. This will allow us to meet the needs of our accelerated Model 3 production plan."

Solar City Acquisition

SolarCity Carport Structure

SolarCity Carport Structure

Tesla also didn't have much to say when it came to the merging of Musk-related companies.

"Finally, we signed a definitive agreement to acquire SolarCity. Buying the largest residential solar energy installer and generator in the United States along with its unique panel technology will further our mission of accelerating the world’s transition to sustainable energy. We see significant opportunities for product innovation and integration, and we shared our initial thoughts on synergies earlier this week."

If interested, more details (and Tesla's full statement) on the $2.6 billion dollar deal can be found here.

From conference call: Morgan Stanley’s Adam Jonas gets poses the obvious question of whether not Musk's other company Space-X will be a Tesla acquisition target too.   Seems like a joke in there somewhere, but Musk quickly shoots down the suggestion with logic, saying there is no good reason for doing something.  Musk does add that there is a "little cooperation" between the two - which is news to us.

Future Products (from conference call)

Tesla semi-truck and mini bus to debut next year, but Tesla not looking to spend a lot of money after Model 3 gets out.  So the Tesla "truck-thing" and bus has an ETA of "less than 5 years", with a compact SUV sooner.

The compact SUV of course is assumes to be a re-imagining of the Model 3 platform, so that offering would be capitalizing on the low cost car.

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Reaction to the earnings report and forecasting was fairly tepid as most of the numbers and news was expected.  TSLA traded almost completely flat in the first hour of extended trading after the report at about ~$226.00  (real-time here)