Tesla delivers record 7,785 Model S units worldwide in Q3; non-GAAP net of $3M, GAAP loss of $75M

6 November 2014

Tesla reported third-quarter global deliveries of 7,785 Model S units, despite a factory shutdown in July; this included the highest ever peak deliveries in a single day of 907 vehicles. The majority of Q3 delivers were in North America. (Tesla does not fully break out its sales by country, nor does it provide monthly sales reports.) The company also reported that Model X deliveries would start in Q3 2015, later than the previously revised target.

Based on orders since the introduction of Dual Motor all-wheel drive and “Autopilot” (earlier post), Tesla management said it was confident of a 50% increase in both net orders and deliveries for Model S alone in 2015. While Tesla is not planning major platform changes to the hardware in the near term, there will be several “significant” over-the-air software releases that add functionality.

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Tesla plans to increase production to more than 2,000 vehicles per week by the end of 2015.

The ramp to our target production rate took longer than expected due to system integration challenges, reducing our production by almost 2,000 vehicles. Being unable to increase production fast enough, not lack of demand, is a fair criticism of Tesla. That said, we expect our annual production will increase by over 50% in 2014, again in 2015 and probably for several years to follow.

Tesla expects 2014 production to be about 35,000 cars, and expects to deliver approximately 33,000 vehicles for 2014. This is 50% above 2013 deliveries, but 5% to 7% below prior estimates for 2014. Tesla is maintaining its earlier projections for 2015.

One of the significant actions we intend to take in order to reduce manufacturing complexity is to simplify our product offering by reducing the number of options and powertrain combinations. This will enhance our ability to scale production in 2015.

Financials. Non-GAAP revenue was $932 million for the quarter, up 55% from a year ago, while GAAP revenue was $852 million. Compared to Q2, the average selling price of Model S declined slightly due to the stronger dollar.

(As is its practice, Tesla includes non-GAAP financial information because it plans and manages the business using that information. Non-GAAP financial information excludes non-cash stock-based compensation and interest expense, and includes deferred revenue and related costs for cars sold with a Resale Value Guarantee or similar buy-back program where Tesla receives cash upon delivery.)

Automotive revenue for Q3 included $31 million of powertrain sales primarily to Daimler for the Mercedes-Benz B Class Electric Drive. It also included $93 million of regulatory credits, including $76 million of Zero Emission Vehicle (ZEV) credits.

• Q3 non-GAAP automotive gross margin was 23.0%, and 22.6% on a GAAP basis, both excluding ZEV credits.

• Research and development (RD) expenses were $119 million on a non-GAAP basis and $136 million on a GAAP basis. Non-GAAP RD expenses were up 28% from Q2 due to engineering efforts on Dual Motor drive, Autopilot system and Model X.

• Selling, general and administrative (SGA) expenses were $138 million on a non-GAAP basis and $155 million on a GAAP basis. The 18% sequential increase in non-GAAP SGA expenses was driven by rapid global growth and by the expansion of customer support infrastructure.

• Cash at quarter end, including cash equivalents, decreased $304 million to $2.4 billion. Operating cash outflows were $28 million, and impacted by using $35 million to fund the leasing program and a $60 million increase in receivables. During the quarter Tesla invested $284 million in capital expenditures.

• Q3 non-GAAP net income was $3 million, while Q3 GAAP net loss was $75 million. Non-GAAP net income for the first nine months of 2014 was $36.3 million, while GAAP net loss for the first nine months of 2014 was $186.4 million.

Model X. Testing of Model X Alpha prototypesand initial builds of the first Beta prototypes are underway. Model X powertrain development is almost complete. In the letter to shareholders, Elon Musk said that the company recently had decided to build in significantly more validation testing time, leading to the delay in brining the Model X to market.

The Model X body center will initially be independent from the Model S body center, allowing Tesla to start building Model X bodies without impacting Model S production.