Tesla 1Q numbers - massive sales growth

10-MAY-17

We had numbers from Tesla last week Wednesday, this was for their First Quarter 2017. Given that the Tesla share price is up 50% Year to Date, on an already lofty share price, the expectations on the company were huge. So how did they stack up?

On the revenue side of things, their automotive related revenue was $2.3 billion for the quarter, an increase of 123%, higher than the market was expecting. Even though the revenue growth was more than impressive they missed on the profit side of the equation or should I say the loss side, they made a loss of $1.33 a share when the 'market' was expecting a loss of only $0.77 a share.

Another key number for the company is deliveries which clocked in at 25 051 for the quarter, an increase of 69% from last year this time and 13% higher than the previous quarter. The company say they are on track to deliver 47 000 - 50 000 cars for the half year, which means they are on track to break the 100 000 mark for the year. The Model 3 will go into production in July of this year, where the goal is to produce 5 000 cars this year and increase the production so that in 2018 they can produce 10 000 cars a week. Given the demand for the Model 3, the speed that they can get it out of the factory will have a meaningful impact on their final delivery numbers.

A relatively small part of Tesla, is Tesla energy which had revenue of $214 million (out of $2.7 billion) for the quarter, an increase of 841% thanks to the purchase of Solar City. A further boost to this division will be the production of their solar roof tiles, production starts in 2Q2017. Given that they are not as reliant on the these revenues as the stand alone Solar City was, they have changed focus from quantity to quality. Meaning that they are focusing on higher margin business but lower volumes, sounds more sustainable to me.

There are many things that other car makers envy of Tesla, I think their gross margin number is the main one though. In the last quarter they had a gross margin of 27.4%, around double that of other mainstream cars. The margin is also growing as economies of scale take place, as opposed to decreasing because of increased competition in the space. Here is another reason other car brands want to be Tesla:

    "Using remote diagnostics, our service technicians are increasingly able to identify repair needs in advance of meeting with customers and even before customers notice issues. This has helped reduce repair times by 35% this year. Our goal is to reduce repair times even further."


Okay, so we can see that they are growing like gangbusters and have amazing margins. The only reason that they may blow up from here is if they run out of cash. In the last quarter they made a loss of close to $400 million, $100 million of which was just interest payments. They plan to spend $2 billion in the first 6 months of this year on CAPEX, currently they have $4 billion in cash on the books. The company needs to become cashflow positive because debt is expensive and issuing equity is more expensive over the long run.

In 5 - 10 years time, when the dust settles on the growth rates and the margins, what value will their profit number be? Based on that profit number and a "normal" multiple, what will their market cap be? Remember that Tesla just passed Ford and GM in market cap. Ford sells 7 times more cars in one month, in the US alone than Tesla does all year round globally. Having said that Tesla is not a normal car company, they have the energy division (which I think will be bigger than the automotive division in time) and they are the leaders in self driving car technology. Do I think this company will be a success? Yes. Would this be an anchor position in my portfolio? I don't have the guts. Happy to be a shareholder with a small position, great to be 'part' of changing the world.