10-QPeriod: Q3 FY2014

Tesla, Inc. Quarterly Report for Q3 Ended Sep 30, 2014

Filed November 7, 2014For Securities:TSLA

Summary

Tesla, Inc.'s (TSLA) third-quarter 2014 Form 10-Q filing reveals a company experiencing significant revenue growth, more than doubling year-over-year, driven primarily by increased Model S deliveries globally and strong sales of regulatory credits. Despite this top-line expansion, the company continued to operate at a loss, with the net loss widening in the nine-month period due to substantial investments in research and development and selling, general, and administrative expenses aimed at scaling production and expanding global operations. The company significantly bolstered its cash position through a substantial issuance of convertible senior notes, bringing total cash and equivalents to over $2.3 billion. Investment in property, plant, and equipment also saw a major increase, reflecting ongoing efforts to expand manufacturing capacity for Model S and Model X, as well as early investments in the Gigafactory. Investors should note the company's updated delivery targets for 2014, which were slightly lowered due to production ramp-up challenges, and its ambitious plans for production capacity increases to meet anticipated demand for Model S and Model X.

Financial Highlights

45 data points
Beta

Revenue

$851.80M

29.6% Gross Margin

Net Income

-$74.71M

-8.8% Net Margin

EPS (Diluted)

$-0.04

Total Assets

$5.44B

Cash & Equivalents

$2.37B

Free Cash Flow

-$312.17M

Financial Statements
Beta
Revenue$851.80M
Cost of Revenue$599.95M
Gross Profit$251.85M
R&D Expenses$135.87M
SG&A Expenses$155.11M
Operating Expenses$290.98M
Operating Income-$39.13M
Interest Expense$29.06M
Net Income-$74.71M
EPS (Basic)$-0.04
Shares Outstanding (Basic)1.87B

Key Highlights

  • 1Total revenues grew by approximately 97% year-over-year for the three months ended September 30, 2014, reaching $851.8 million, driven by a significant increase in Model S deliveries and strong regulatory credit sales.
  • 2The company reported a net loss of $74.7 million for the third quarter of 2014, compared to a net loss of $38.5 million in the same period of 2013, indicating continued investment in growth outweighing revenue gains.
  • 3Cash and cash equivalents increased dramatically to $2.37 billion as of September 30, 2014, primarily due to the issuance of $2.30 billion in convertible senior notes during the nine months ended September 30, 2014.
  • 4Research and development (R&D) expenses more than doubled year-over-year to $135.9 million for the quarter, reflecting accelerated engineering work on Model X and dual-motor powertrains.
  • 5Selling, General, and Administrative (SG&A) expenses also significantly increased to $155.1 million for the quarter, driven by global expansion of sales, service, and Supercharger infrastructure.
  • 6The company announced updated 2014 delivery expectations, projecting approximately 33,000 vehicles, a slight reduction from prior estimates due to production ramp-up challenges.
  • 7Significant investments in property, plant, and equipment, totaling $601.2 million in the nine-month period, are supporting the expansion of Model S and Model X production capacity and early Gigafactory construction.

Frequently Asked Questions

Tesla's revenue significantly increased by 97% year-over-year to $851.8 million in Q3 2014, largely due to a substantial rise in Model S deliveries worldwide and higher sales of regulatory credits. However, the company reported a wider net loss of $74.7 million, up from $38.5 million in Q3 2013. This widened loss was driven by increased investments in R&D ($135.9 million) for Model X and dual-motor powertrains, and higher SG&A expenses ($155.1 million) for global expansion of its sales, service, and Supercharger networks.

Tesla significantly strengthened its liquidity by issuing $2.3 billion in convertible senior notes during the first nine months of 2014, resulting in cash and cash equivalents totaling $2.37 billion as of September 30, 2014. The company expects its current liquidity sources, combined with projected operating cash flow, to be sufficient for its current plans, including funding operations, R&D, Model X and Model 3 development, and Gigafactory investments. Tesla indicated it may explore additional capital resources for long-term growth initiatives if market conditions are favorable.

Tesla updated its 2014 delivery forecast to approximately 33,000 vehicles, a slight reduction from previous estimates, primarily due to production ramp-up challenges related to its new final assembly line and the introduction of dual-motor and autopilot features. Despite these challenges, the company plans to increase combined Model S and Model X production capacity to over 2,000 units per week by the end of 2015 and anticipates over 50% annual production growth for the next several years. The company is also continuing early construction activities for the Gigafactory, with initial cell production expected in 2016.

Tesla accounts for its Model S leasing and resale value guarantee programs as operating leases. Revenue from these programs is deferred and recognized over the contractual term of the lease or guarantee, rather than at the time of sale. This accounting treatment adversely impacts near-term revenues and operating results by deferring recognition of revenue and costs. The resale value guarantee program, in particular, does not impact cash flow at the time of delivery but exposes Tesla to residual value risk if returned vehicles are resold for less than estimated values.