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Last Update: 09-May-13 07:50 ET
Tesla Motors shares power higher as EPS accelerates past estimates
Tesla Motors (TSLA $66.07 +10.19) reported first quarter earnings of $0.12 per share, excluding non-recurring items, $0.08 better than the Capital IQ consensus of $0.04 (co guided for profitable quarter on April 1), while revenues rose 1760.9% year/year to $562 million versus the $496.57 million consensus. From Q4 to Q1, total gross margin rose from 8% to 17%, as a result of a higher Model S production rate, manufacturing efficiencies, part cost reductions and regulatory credit sales. Zero emission vehicle (ZEV) credits sold to other automakers amounted to approximately $68 million or 12% of revenues. We expect this to decline New Store at Santana Row, California New Red significantly in future quarters, as ZEV credits will only apply to about 1/6 of worldwide deliveries, versus roughly half of US deliveries, and the price per credit has declined. However, an important point for investors to note is that we are reaffirming our prior guidance of a gross margin of 25% in Q4 2013, assuming zero ZEV credit revenue.
"We are pleased with the strong global demand for Model S and are currently receiving orders at a rate greater than 20,000 per year worldwide. Importantly, we are seeing orders in a particular region increase proportionate to the number of deliveries, which means that customers are selling other customers on the car. Given that we have not yet delivered any customer cars outside of North America, there would appear to be significant upside potential in Europe and Asia. We continue to modify our sales processes to simplify and enhance the customer experience. As vehicle production became more reliable during Q1, we realized that the reservation process was cumbersome and therefore eliminated it. Customers in North America now order their customized Model S online in a simple three step process, rather than placing a generic reservation in a queue. As a result, quarter-end reservation data is no longer a meaningful metric, nor is it comparable to prior quarters. Going forward, we believe that the accepted automotive industry approach of focusing on margin improvement, profitability and deliveries are the more meaningful metrics for measuring progress. During Q1, we consistently produced 400 or more Model S vehicles per week, for a total of over 5,000 during the quarter. We recognized 4,900 vehicles as revenue, exceeding our initial Q1 guidance of 4,500, despite physically delivering a higher number of vehicles, as the standard for revenue recognition was extremely high.
"While we expect to build about 5,000 Model S vehicles in Q2, some cars will be in transit to Europe for start of deliveries in Q3. As a result, we expect to deliver slightly over 4,500 vehicles during Q2, all in North America. For the full year of 2013, we expect to exceed our prior target of 20,000 worldwide deliveries and feel comfortable raising guidance to about 21,000 deliveries. Obviously, there is a huge amount of work ahead to improve the gross margin of Model S, but we have a clear roadmap to achieve component cost reductions, as well as achieve additional manufacturing and logistics efficiencies. As a result, we expect to achieve gross margin in the high teens in Q2 (consensus ~21%). Importantly, this expectation includes the impact from lower ZEV credit sales, a lower average selling price due to a higher mix of 60 kWh cars, as well as limited sales of the now discontinued 40 kWh cars, which will have a range-limited 60 kWh battery pack. As mentioned above, we expect that our gross margin will continue to rise into the second half of the year to our target of 25%, assuming no contribution from ZEV credits."
"We are pleased with the strong global demand for Model S and are currently receiving orders at a rate greater than 20,000 per year worldwide. Importantly, we are seeing orders in a particular region increase proportionate to the number of deliveries, which means that customers are selling other customers on the car. Given that we have not yet delivered any customer cars outside of North America, there would appear to be significant upside potential in Europe and Asia. We continue to modify our sales processes to simplify and enhance the customer experience. As vehicle production became more reliable during Q1, we realized that the reservation process was cumbersome and therefore eliminated it. Customers in North America now order their customized Model S online in a simple three step process, rather than placing a generic reservation in a queue. As a result, quarter-end reservation data is no longer a meaningful metric, nor is it comparable to prior quarters. Going forward, we believe that the accepted automotive industry approach of focusing on margin improvement, profitability and deliveries are the more meaningful metrics for measuring progress. During Q1, we consistently produced 400 or more Model S vehicles per week, for a total of over 5,000 during the quarter. We recognized 4,900 vehicles as revenue, exceeding our initial Q1 guidance of 4,500, despite physically delivering a higher number of vehicles, as the standard for revenue recognition was extremely high.
"While we expect to build about 5,000 Model S vehicles in Q2, some cars will be in transit to Europe for start of deliveries in Q3. As a result, we expect to deliver slightly over 4,500 vehicles during Q2, all in North America. For the full year of 2013, we expect to exceed our prior target of 20,000 worldwide deliveries and feel comfortable raising guidance to about 21,000 deliveries. Obviously, there is a huge amount of work ahead to improve the gross margin of Model S, but we have a clear roadmap to achieve component cost reductions, as well as achieve additional manufacturing and logistics efficiencies. As a result, we expect to achieve gross margin in the high teens in Q2 (consensus ~21%). Importantly, this expectation includes the impact from lower ZEV credit sales, a lower average selling price due to a higher mix of 60 kWh cars, as well as limited sales of the now discontinued 40 kWh cars, which will have a range-limited 60 kWh battery pack. As mentioned above, we expect that our gross margin will continue to rise into the second half of the year to our target of 25%, assuming no contribution from ZEV credits."
