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Tesla Q4 earnings: still in the red, but great things coming soon

Tesla Model S

Tesla’s earnings report for the 4th quarter of 2014 followed the usual pattern: there’s plenty of good news, but the company is still operating at a loss; Elon Musk dropped his customary vague hint of more wondrous goodies to come in the future; and the stock market reacted in its usual way – TSLA shares took a steep fall after the report, but recovered much of the loss over the next couple of days.

The good news: In 2014, Tesla achieved its production target of 35,000 vehicles, vastly expanded its network of stores, service centers and Superchargers, and introduced numerous improvements to Model S, including the new P85D model, which earned loads of applause in the press and a flurry of new orders.

New Autopilot features continue to appear overnight. It’s a bit difficult to tell which features are working now, and which are yet to come, but the company said that Autopilot-equipped cars now have traffic-aware cruise control, forward collision alert, and automatic high-beam dimming, and that several new goodies will be introduced in Q1 and Q2. Several hardware upgrades are now available, including “next-generation” front seats, executive second-row seats and a second-row center console.

Tesla reported a record number of orders in the quarter, and entered 2015 with 10,000 orders for Model S and 20,000 reservations for Model X. Model S hit the road in five new countries, including Australia. Despite initial slow sales in China, which Musk says have been “blown out of proportion,” the company still hopes for great things there. “We are concentrating our efforts on the cities we are in currently, before launching into new cities. Our China initiatives include simplifying the buying process there by having Tesla personnel install charging points at customer homes or businesses well before vehicle delivery.”

Tesla now has 380 Supercharger stations around the world, and has started deploying Level 2 chargers under its Destination Charging program, which already boasts 900 locations in Asia and North America, and will soon be expanded to Europe.

Model X development remains on schedule to begin deliveries in Q3. “Over 30 Beta Model X vehicles have been built and are undergoing extensive testing. In March, we will start building and testing a small fleet of Release Candidate Model X vehicles that will be very close to the final production-intent design.”

The structure of the Gigafactory started taking shape two months ago, and equipment installation is to begin later this year. Battery pack production is scheduled to begin in 2016.

The bad news: Tesla missed analysts’ earnings estimates, posting a net loss (GAAP) of $108 million, or 86 cents per share, on revenue of $957 million. Automotive gross margin for Q4 was 22 percent, which is actually pretty good by industry standards.

Tesla’s future plans can be seen as good or bad, depending on how aggressive you think they should be. The company plans to expand capacity in several areas ahead of the Model X launch in Q3. It will install a new automated casting and machining operation, a new robotic body assembly shop and a new paint facility. With these upgrades, Tesla should have sufficient capacity to increase production to 2,000 vehicles per week by year-end.

This all sounds very expensive, and it will be. In a conference call with analysts, Elon Musk and JB Straubel said that Tesla is going to spend “staggering amounts of money” on capital expenditures – about $1.5 billion. They insisted that the outlay will generate a good return on investment, but some of the professional stock-watchers were a bit shocked.

Morgan Stanley analyst Adam Jonas wrote that Tesla has just pushed the “insane button.” Insane in a good way, presumably – just a couple of weeks ago Jonas wrote that TSLA shares are poised for a major rally, and he remains optimistic. “Seems Tesla is preparing to be a much larger company than we have forecast…leaving us with nervous excitement.”

Many other analysts are less sanguine, obsessed with the losses and skeptical about sales. J.P. Morgan fretted about “softer execution, stronger competition and lower oil prices,” and Barclay’s wrote, “Tesla’s push to become a mass market automaker is much harder than it looks.”

Hard or not, the disruptors of Detroit aren’t looking back. In 2015, the company expects to deliver 55,000 Model S and X vehicles, a massive increase over 2014. Elon Musk reassured the skeptics: “Even if our sales were zero in China this year, I’m still confident we could do the 55,000 cars,” said he, and by the way, “they won’t be zero.”

And of course, Musk’s obligatory teaser of something big in the offing: “I think we have a secret weapon on the demand side that will probably start to deploy later this year. We’ll see how that goes, it isn’t totally necessary and it’s a good weapon against the dealers.”


Sources: Tesla, LA Times, GigaOM
Image: Ninac26 (CC BY 2.0)

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