10-QPeriod: Q1 FY2018

Tesla, Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 7, 2018For Securities:TSLA

Summary

Tesla's Q1 2018 10-Q filing reveals a period of significant investment and operational challenges, particularly with the Model 3 production ramp. Despite a substantial increase in total revenues, up 26% year-over-year to $3.41 billion, driven by strong automotive sales growth and a near doubling of energy generation and storage revenues, the company reported a widening net loss. This was largely due to increased cost of revenues, especially within the automotive segment, and higher operating expenses, particularly in R&D and SG&A. The adoption of ASC 606 (new revenue standard) also impacted revenue recognition, leading to reclassifications and adjustments. Key financial takeaways include a substantial increase in inventory and a decrease in cash and cash equivalents compared to the prior quarter. The company continues to manage a significant debt load. Management highlights ongoing efforts to overcome production bottlenecks, particularly for Model 3, and reaffirms production targets while acknowledging the inherent difficulties in forecasting. Investments in capital expenditures remain substantial, focused on production capacity and infrastructure expansion.

Financial Highlights

50 data points
Beta

Revenue

$3.41B

13.4% Gross Margin

Net Income

-$709.00M

-20.8% Net Margin

EPS (Diluted)

$-0.28

Total Assets

$27.27B

Cash & Equivalents

$2.67B

Free Cash Flow

-$1.05B

Financial Statements
Beta
Revenue$3.41B
Cost of Revenue$2.95B
Gross Profit$456.00M
R&D Expenses$367.10M
SG&A Expenses$686.40M
Operating Expenses$1.05B
Operating Income-$596.97M
Interest Expense$149.55M
Net Income-$709.00M
EPS (Basic)$-0.28
EPS (Diluted)$-0.28
Shares Outstanding (Basic)2.54B
Shares Outstanding (Diluted)2.54B

Key Highlights

  • 1Total revenues increased by 26% to $3.41 billion, driven by automotive sales and energy generation/storage segments.
  • 2Automotive sales revenue grew 26% year-over-year, boosted by Model 3 deliveries and the adoption of ASC 606.
  • 3Energy generation and storage revenue nearly doubled, increasing by 92% due to increased deliveries and the South Australia battery project.
  • 4The company reported a significant net loss of $784.6 million for the quarter, a substantial increase from the prior year's loss of $397.2 million.
  • 5Cost of revenues increased significantly (46%), outpacing revenue growth, leading to a lower gross profit and margin (13% vs. 25% in Q1 2017).
  • 6Operating expenses increased, with R&D up 14% and SG&A up 14%, reflecting continued investment in new products and expansion.
  • 7Cash used in operating activities increased substantially to $398.4 million, compared to $69.8 million in the prior year's quarter.
  • 8Total debt remained substantial, with over $10.4 billion in principal outstanding as of March 31, 2018.

Frequently Asked Questions

Tesla's revenue increased significantly primarily due to a substantial rise in automotive sales, including the initial deliveries of the Model 3, and a strong performance in the energy generation and storage segment, which nearly doubled its revenue. The adoption of the new revenue recognition standard (ASC 606) also contributed to revenue recognition for certain vehicle sales.

The widened net loss was driven by a significant increase in the cost of revenues, particularly in the automotive segment, which grew at a faster pace than revenues. Higher operating expenses in research and development and selling, general, and administrative functions, along with increased interest expenses, also contributed to the larger net loss. This was partly due to ongoing investments to ramp up Model 3 production and operational challenges.

The adoption of ASC 606, the new revenue recognition standard, on January 1, 2018, led to several changes. It shifted the timing of revenue recognition for certain vehicle sales with resale value guarantees to the point of delivery, impacting automotive sales and leasing revenues. It also resulted in reclassifications of balances on the balance sheet, such as moving amounts from deferred revenue and resale value guarantees to accumulated deficit or customer deposits. The adoption led to adjustments in reported revenues, costs, and various balance sheet accounts.

Tesla acknowledged ongoing challenges in ramping Model 3 production, particularly with certain automated manufacturing processes, leading to temporary reductions in automation. The company reiterated its target of approximately 5,000 vehicles per week by early July 2018, but also noted the difficulty in precisely forecasting ramp timelines. Significant investments in capital expenditures are planned to support this ramp, alongside efforts to resolve production bottlenecks and improve efficiency.