Tesla (TSLA) Swings to Earnings in Q3, Beats on Revenues

Tesla Motors, Inc. TSLA reported earnings of 14 cents per share in the third quarter of 2016, against a loss of $2.09 in the year-ago quarter. The Zacks Consensus Estimate was of a loss of 64 cents.

Revenues surged 144.7% year over year to a record $2.3 billion, surpassing the Zacks Consensus Estimate of $2.13 billion.

Tesla delivered a record 24,821 cars in the reported quarter, of which 16,047 were Model S and 8,774 were Model X. Additionally, 5,065 vehicles were in transit to customers, slated to be delivered in the fourth quarter. The company manufactured a record 28,185 vehicles in the third quarter, up 37% from the second quarter and 92% year on year.

Revenues from Automotive sales rose to $2.15 billion in the quarter from $852.6 million a year ago.

Services and Other revenues surged 77.8% to $149.7 million from $84.2 million in the year-ago quarter due to higher sales of used vehicles and stationary storage products.

Tesla’s third-quarter 2016 gross margin was 27.7%. Adjusted automotive gross margin was 25% in the quarter, up 140 basis points from the second quarter due to improved manufacturing efficiency and higher production.

Financial Position

Tesla had cash and cash equivalents of $3.08 billion as of Sep 30, 2016, compared with $1.20 billion as of Dec 31, 2015. Long-term debt totaled $2.70 billion as of Sep 30, 2016, compared with $2.65 billion as of Dec 31, 2015.

Cash flow from operating activities amounted to $324.4 million in the first nine months of 2016, compared with outflows of $494.7 million a year ago. Capital expenditures decreased to $759.2 million from $1.22 billion in the first nine months of 2015. The company reduced the balances on its borrowing facilities by $178 million in the reported quarter and settled $422 million of conversions on the 2018 convertible notes.

Tesla increased its borrowing capacity in third-quarter 2016 with an additional $300 million retail lease financing facility. The company’s largest indirect leasing partner also increased its leasing capacity with them by over 80%. As a result, the automaker’s indirect leasing capacity too has expanded.

Business Expansion

Tesla’s net new vehicle orders went up 68% in the reported quarter. Model S remained a leader in the large luxury sedans category and significantly increased its market share in North America.

Tesla is also expanding its vehicle charging network. At the end of the third quarter, the company had 715 Supercharger locations globally, with 4,461 individual chargers. While 97% and 86% of the population of continental U.S. and Western Europe, respectively, are within 150 miles of a Supercharger now, the company aims to reach similar coverage levels for high population areas in China, Japan and Australia. To supplement the Superchargers, 3,222 destination chargers with 5,547 connection points were available globally at the end of the third quarter. These chargers offer easy charging at hotels, malls as well as restaurants. During the reported quarter, the company opened 17 new stores and service centers to increase the customer support network to 250 locations globally.

On Aug 1, 2016, Tesla announced a deal to acquire SolarCity for $2.6 billion in an all-stock purchase. The company expects to achieve over $150 million of direct cost synergies for the first year on completion of the acquisition.

In Jul 2016, Tesla held the official opening of the Gigafactory in Nevada. It remains on track to begin cell production at this facility later in 2016. Additionally, the company continues to expand its production at the Fremont facility and is exploring further production capacity in Asia and Europe.

Model 3 Update

Tesla has completed production line layouts for Model 3. The company will soon start installing the new body welding and final assembly lines. It is now testing the vehicle’s systems. High volume production and deliveries of the car will start from the second half of 2017.

Outlook

Furthermore, we expect this to continue into the fourth quarter and project positive GAAP net income (excluding non-cash stock-based compensation) despite ZEV credit sales likely to be negligible in the quarter.

Tesla continues to target 50,000 vehicle deliveries in the second half of 2016, with just over 25,000 deliveries in the fourth quarter. The company expects 30%−35% of these deliveries to be considered as leases for revenue recognition purposes.

Previously Tesla had projected adjusted and reported automotive gross margins improvement of 2–3 percentage points by 2016 end, backed by cost reductions as well as improving production efficiency of Model S and Model X. The company is on track to achieve this.

For 2016, operating expenses had previously been projected to rise by 30% due to engineering, design, and testing expenses related to Model 3 supplier contracts, and higher sales and service costs associated with expanding geographically. The company is also on track to meet this projection.

Tesla expects capital expenditure for 2016 to be around $1.18 billion, down from the previous guidance of $2.25 billion, as it continues to focus on capital efficiency. The company is also planning to add a new leasing partner in fourth-quarter 2016.

TESLA MOTORS Price, Consensus and EPS Surprise

 

TESLA MOTORS Price, Consensus and EPS Surprise | TESLA MOTORS Quote

Zacks Rank

Currently, Tesla carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the auto space include The Goodyear Tire & Rubber Company GT, Tata Motors Limited TTM and Standard Motor Products Inc. SMP, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Goodyear has seen its earnings estimates move north over the last 60 days.

Tata Motors has a long-term expected growth rate of 3.60%.

Standard Motor has a long-term expected growth rate of 15%.

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