Tesla "Beats" As It Burns A Record $1 Billion In Cash Flow, Delivers 10% Fewer Cars

Analysts and traders alike were looking forward to today's "black box" earnings from Tesla as it would be the first consolidated report that combined Tesla Motors operations with those from cash-bleeding monstrocity SolarCity following the pair's merger, to wit: "with the acquisition of SolarCity, we have created the world’s only integrated sustainable energy company, from generation to storage to transportation."

And, as usual, Elon Musk managed to fool all those who were only focusing on the headline numbers, which were surprisingly good. In fact, TSLA beat on both the bottom and top line, reporting 4Q loss per share of $0.69 far better than the consensus estimate loss of $1.14, on revenue of $2.28 billion, also better than consensus of $2.13 billion. However, much of this "beat" was thanks to "energy generation and storage" revenues. Pure automotive revenue was down 7% QoQ from $2.15BN to $2.0BN.

It is worth noting that Tesla's Q4 financial statements include the results of SolarCity’s operations only from the close of the acquisition on November 21 to December 31, 2016.

For the quarter, Tesla reported 22,252 vehicle deliveries, down 10% from the prior quarter's 24,821, on production of 24,882 vehicles, also down 1% from the prior quarter.  Discussing the much anticipated Model 3, Tesla said that the "program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018."

Tesla also reported an automotive gross margin excluding SBC and ZEV credit (non-GAAP), of 22.2% in the quarter, up from 19.7% a year ago, but down from 25.0% in Q3. This was a big miss to expectations of 26.1%. The company admitted that "service and other gross margin was affected by negative vehicle service gross margin in the quarter, as we ramp up our service capability ahead of the launch of Model 3."

The company also reported that during Q4, customers asked it to repurchase 3% of vehicles eligible for buy back under its resale value guarantee program: "pre-owned vehicle sales drove most of the increase in Q4 Services and other revenue."

Looking at the future, Tesla said it expects to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, it hopes that both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.

The company also expects to invest between $2 billion and $2.5 billion in capex ahead of the start of Model 3 production and continues "to focus on capital efficiency while also investing in battery cell, pack and energy storage production at Gigafactory 1. It also forecast that both Model 3 and solar roof launches are on track for the second half of the year.

For those who are concerned about Tesla's cash burning ways, the following disclosure will be troubling: in addition to Gigafactory 1, the company is planning to finalize locations for Gigafactories 3, 4... and 5.

Model 3 vehicle development, supply chain and manufacturing are on track to support volume deliveries in the second half of 2017. In early February, we began building Model 3 prototypes as part of our ongoing testing of the vehicle design and manufacturing processes. Initial crash test results have been positive, and all Model 3-related sourcing is on plan to support the start of production in July. Installation of Model 3 manufacturing equipment is underway in Fremont and at Gigafactory 1, where in January, we began production of battery cells for energy storage products, which have the same form-factor as the cells that will be used in Model 3. Later this year, we expect to finalize locations for Gigafactories 3, 4 and possibly 5 (Gigafactory 2 is the Tesla solar plant in New York).

Which means many billions more in sunk costs.

Something else interesting about this investor letter is that this time the company failed to provide guidance on vehicle deliveries for the coming year. Last year, Tesla guided to 80,000-90,000 deliveries and fell short, getting only about 75,000 vehicles into customers' hands. For 2017, the company said that it would "deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP."

Extrapolating deliveries, would imply roughly 150,000 vehicles in 2017, if it hopes to make its numbers, which suggests that Tesla will be well below plan to meet Musk's pledge to deliver 500,000 vehicles annually by 2018. As of this moment, that isn't happening.

So on to liquidity where Tesla had a lot to say, starting with: "In Q4, we increased cash by $309 million. Cash used in operating activities was unusually high as we paid down trade payables and had an elevated number of vehicles-in-transit at quarter end. As designed, our funding arrangements scaled with our operating cash flow needs as receipts from our bank leasing partners and draws on our asset-backed line and credit facility increased our liquidity position. We also received $214 million in cash from the acquisition of SolarCity."

And then there was the ongoing massive CapEx spend:

We invested $522 million in capital expenditures for Model 3 manufacturing capacity, Gigafactory 1, and expanded customer support infrastructure. Our capital expenditures came in below plan as we continue to negotiate more favorable payment terms with our capital equipment suppliers, pushing some payments closer to the start of Model 3 production and some payments beyond the start of production.

Finally, Tesla is now adding even more credit facilities:

During the quarter, we added three new lender commitments under our asset-backed line and vehicle lease warehouse credit facility, increasing our credit agreements by $500 million, for a total of $1.80 billion in commitments. At quarter end, we had $1.36 billion drawn against these commitments.

In all, Tesla generated a whopping $1.4 billion in cash from financing activities. We hope its banks are well colalteralized.

Finally, here are the results visually, first Revenue:


Then EPS, both GAAP and non-GAAP:


Finally, the most important chart of all: cash burn, which nearly hit $1 billion as a result of $448 million in cash burn from operations coupled with $522 million in CapEx.