Tesla Motors ( TSLA ) did not disappoint investors as it delivered yet another set of solid results. During the quarter, the company's revenues stood at $620.5 million, up from $615.2 million in the fourth quarter. The net income stood at -$50 million, or a loss of 40 cents a share. The automaker produced 7,535 Model S vehicles and delivered a total of 6,457 vehicles, outpacing its own guidance. This means that Tesla is on course to meet the 35,000 deliveries target for the full-year of 2014, which is in line with the previous guidance.
We have a price estimate of $150 for Tesla , which is about 25% below the current market price. We are in the process of revising our estimates to incorporate the latest earnings.
Tesla had introduced a new lease program earlier in 2013. GAAP requires Tesla to spread out the revenues of the cars sold through this program over the lease tenure (i.e. treating these revenues as deferred revenues). Therefore, a better method to gauge the automaker's performance is to analyze the non-GAAP figures. On a non-GAAP basis, Tesla's revenues were $713 million, down from $761.3 million in the fourth quarter. The net income stood at $17 million, or 12 cents a share.
In 2014, the automaker expects to sell 35,000 Model S cars, helped by higher production rates and expansion into new markets. The first quarter's 7,535 vehicles produced means that Tesla has upped its average weekly production rate to 627 and the full-year guidance of 35,000 corresponds to a weekly production rate of ~675. Meanwhile, the company has also been working on making its assembly line efficient enough to be able to improve the production rate to 1,000 vehicles a week.
Tesla plans on producing 8,500-9,000 vehicles in the second quarter, representing an increase of 13% to 19% over the first quarter. The company expects to deliver about 7,500 Model S vehicles in the same period. Since, just over 1,000 cars produced in the first quarter are only expected to be delivered by the beginning of the second quarter, this means that of the 8,500-9,000 cars produced in the next quarter, the company expects only 6,500 to be produced in time to be delivered in the consequent quarter. The company said that it expects the quarterly gap between vehicles produced and vehicles delivered to decline in the future quarters. This is important as some customers, especially in China, have expressed disappointment at the time lag between time of order and time of delivery. Speaking of China, the Shanghai government announced that drivers of Tesla's Model S will be entitled to free license plates, allowing them to avoid the usual public auction of $10,000 to $15,000 per plate. Given the car's already competitive pricing, this offers a further incentive to Chinese consumers to purchase the car.
Additionally, the company's efforts to be able to sell its cars directly to consumers in the U.S. states like New Jersey, Texas, Colorado and Arizona received a boost when three directors of the Federal Trading Commission published a blog post supporting Tesla's bid to sell directly to customers. Having a long list of consumer activists, economists and influential policy makers on its side should go a long way to make Tesla's success possible.
Average Revenue Per Vehicle Corrects
During the quarter, the average revenue per vehicle stood at ~$110,700. During the first quarter of 2013, the average revenue per vehicle went as high as $115,000, buoyed by sales of ZEV credits, to the tune of $60 million. Another reason why the figure was higher during the start of 2013 was because Tesla had primarily delivered its high-end versions first. As the automaker eventually delivered its lower priced options, the average revenue per vehicle witnessed a correction. With Tesla's recent announcement that Model S' Chinese pricing will be similar to American pricing, the average revenue per vehicle of a Model S should continue to remain at similar range.
Impressive Margin Expansion
The automaker's gross margins dropped from 25.45% to 25% on account of an increase in the percentage of vehicles sold via Tesla's lease program over the quarter. On a non-GAAP basis, gross margins improved to 25.19% compared with last quarter's 24.93%. Tesla's gross margins have improved from 17.1% in the first quarter of 2013 to 25% in the latest quarter, helped by higher volumes and operational efficiencies. However, the company thinks there is room to further improve margins. Tesla is now targeting gross margins of 28% by Q4 2014. Auto companies, in their definition of cost of goods, usually include some fixed cost components like labor costs, plant operational expenses etc. Therefore, as volumes increase, the additional revenues often result in improved gross margins.
However, Tesla also cautioned that administrative and capital expenses will rise significantly as the company scales up its customer support to keep pace with the growing global demand for its products. The company stated that it plans to accelerate the rate at which it opens stores and service centers. The plan is to increase the number of company operated stores by more than 75%. Additionally, the company plans to install more than 200 superchargers globally by then end of this year. Superchargers are charging stations installed by Tesla for its customers to charge their car batteries for free.
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