Tesla Burns A Record $16 Million Per Day

One month after Tesla surprised markets with an unexpectedly low production output of its much anticipated Model 3, delivering just 260 cars far below the 1,500 expected, which according to a follow up report from the WSJ was due to parts of the car actually being made by hand, investors were fearfully looking forward to today's Q3 earnings report despite Elon Musk's assurance that Tesla had its "all-time best quarter" for Model S and X deliveries. Those fears were justified when moments ago Tesla reported an adjusted, non-GAAP loss of ($2.92), far worse than the expected loss of ($2.27), which was more than double the ($1.33) loss in Q2.

The silver lining is that in the third quarter, Tesla generated revenue of $2.98 billion, slightly better than the $2.93 billion expected, but this was more than offset by the plunge in the Automotive gross margin, which in Q3 was 18.7 non-GAAP, far below the 25.0% in the previous quarter, and worse than expected.

It was all downhill from there, however, and in what has become the most sensitive topic for the EV maker, Tesla continued to burn epic amounts of cash, outdoing itself in Q3 with a record cash burn of $1.4 billion - or roughly $16 million per day: an unprecedented amount. This was higher than the $1.2 billion consensus forecast. In Q3, Tesla's CapEx was $1.116 billion, a number which is set to continue pressuring its balance sheet as the company continues to ramp up Model 3 production. Indeed, Tesla announced that capital expenditures are expected to be approximately $1 billion in Q4, "driven largely by milestone payments on Model 3 production equipment, as well as Gigafactory 1, and further expansion of stores, service centers, delivery hubs and the Supercharger network."

Understandably, the cash burning behemoth was proud to announce that it had $3.5 billion in cash on hand at the end of Q3. There is just one problem, and this wasn't announced in the letter: Tesla also had $3.9 billion in accounts payable and accrued liabilities, a number that was unchanged from the previous quarter, as the company drains all net working capital sources of cash it can find.

In terms of deliveries, there were no surprises: as the company disclosed previously, it delivered 25,915 Model S and Model X vehicles and just 222 Model 3 vehicles, for a total of 26,137 deliveries. Combined Model S and Model X deliveries in Q3 grew 18% globally compared to Q2 and 4.5% versus the same quarter one year ago.

And this is where the trouble started, because looking into the future, Tesla revealed an even scarier picture, warning that due to the the nature of manufacturing challenges during a ramp such as this "makes it difficult to predict exactly how long it will take for all bottlenecks to be cleared or when new ones will appear."

The result: the company now anticipates hitting a production rate of 5,000 Model 3s not by December as it said previously, but some time in late Q1:

Based on what we know now, we currently expect to achieve a production rate of 5,000 Model 3 vehicles per week by late Q1 2018, recognizing that our production growth rate is like a stepped exponential, so there can be large forward jumps from one week to the next."

Additionally, Musk did not say when he expects production to hit 10,000 per week:

 We will provide an update when we announce Q4 production and delivery numbers in the first few days of January. With respect to the timing for producing 10,000 units per week, it has always been our intention to implement that capacity addition after we have achieved a 5,000 per week run rate. That will enable us to make the next generation of automation even better while making our capex spend significantly more efficient.

Musk was quick to blame suppliers for again having to push back the delivery schedule, saying that "to date, our primary production constraint has been in the battery module assembly line at Gigafactory 1, where cells are packaged into modules. Four modules are packaged into an aluminum case to form a Model 3 battery pack. The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected. The biggest challenge is that the first two zones of a four zone process, key elements of which were done by manufacturing systems suppliers, had to be taken over and significantly redesigned by Tesla."

The company then promised that it has "redirected our best engineering talent to fine-tune the automated processes and related robotic programming, and we are confident that throughput will increase substantially in upcoming weeks and ultimately be capable of production rates significantly greater than the original specification." Which is bizarre in light of all the recent mass terminations from its Fremont facility.

Kicking the can yet again, TSLA said it will provide an update when it announces 4Q production and delivery numbers in the first few days of January.

Musk also said that between cash on hand, future cash flows and available lines of credit, believes TSLA says it is well capitalized to accommodate the revised ramp of Model 3 production to 5,000 per week... assuming it ever gets there of course.

Some more on the outlook:

Based on the recent acceleration in order growth, we now expect that Model S and Model X are on pace for about 100,000 deliveries in 2017, an increase of 30% compared to 2016. Notwithstanding these increased deliveries, we plan to produce about 10% fewer Model S and Model X in Q4 compared to Q3 because of the reallocation of some of the manufacturing workforce towards Model 3 production. As a result, inventory level of finished Model S and X vehicles should continue to decline.

 

We expect Model 3 non-GAAP gross margin to reach breakeven by end of Q4, because of increased capacity utilization, and it should improve rapidly in 2018 to our target of 25%. Our recent production challenges may affect short-term costs, but they have no impact on our 25% gross margin target, since there has been no change to our projections for material, labor and overhead costs per vehicle

Finally, some more bad news:

Due to a higher mix of temporarily lower margin Model 3 deliveries in Q4 compared to Q3, we expect non-GAAP automotive gross margin to temporarily decline slightly in Q4 to about 15% and then recover starting in Q1. Gross profit is expected to grow more than operating costs in Q4 compared to Q3, while operating costs are expected to be flat to up slightly in Q4. Between cash on hand, future cash flows and available lines of credit, we believe that we are well capitalized to accommodate the revised ramp of Model 3 production to 5,000 per week. Upon achieving this production level, we expect to generate significant cash flows from operating activities.

Or not:

Capital expenditures are expected to be approximately $1 billion in Q4, driven largely by milestone payments on Model 3 production equipment, as well as Gigafactory 1, and further expansion of stores, service centers, delivery hubs and the Supercharger network.

The worst news, however, is that investors may finally be losing patience and the stock was down as much as 5% after hours, a rare adverse reaction to the company's increasingly shaky - if extremely ambitious - growth plan coupled with a cash burn that puts even Netflix to shame.

As for Tesla's bondholders, judging by the steep price drop after hours as holders flee from what is an increasingly obvious "melting ice cube", the company may have trouble finding willing buyers the next time it decides to issue debt.

Comments

SloMoe Wed, 11/01/2017 - 16:55 Permalink

Well, geeze. It's tough to weld steel, right? Guess we know a little more about all those "performance-related" employee layoffs now...

Occident Mortal Arnold Wed, 11/01/2017 - 17:06 Permalink

Tesla have a run rate of about 100,000 EV's per year, up 5% from the same quater last year...BMW have a run rate of about 50,000 EV's per year, up 78% from the same quater last year... Guess how these numbers will look in 2 years time? Musk is about 18 months away from his market share following Internet Explorer.

In reply to by Arnold

not dead yet german Wunderkind Thu, 11/02/2017 - 03:59 Permalink

GM and the rest with last years models left over will cut deals and clear them out as the market is still doing quite well. Last year in the US was a record and just because they did not break the record this year does not mean all is lost as some like to claim. Sales are still near record. Unlike Tesla they can afford to sell some stuff at a loss because they each make BILLIONS in profits.If you had been paying attention and looked past Musks excuses, it's always the same stuff it's someone elses fault, Elon told you the future will be a financial disaster. He said he expects GROSS margins on the 3 will be break even and hopefully sometime in 2018 they will reach 25%. After SG&A, that's selling general and administrative expenses, he going to lose a boatload of money on every 3 he sells and this is all based on non gaap funny accounting. GAAP will be far worse. This is all based on Tesla only making 3's for the near future with larger batteries and better interior and paint making the cars retail for 45 to over 50 grand. His losses would be even bigger if he made the strippos for for 35 G's. Wonder how many PO'd customers there are getting pushed back in the line because they didn't buy the expensive options. In case you didn't know GAAP is Generally Accepted Accounting Principles. Anything else is pulling numbers out of your ass. Another tell was lowering production on the S and X by 10% to supposedly put workers on the 3 line. Musk also said it would lower inventory levels of those models. Whoa Nelly. Supposedly the order book for the S and X is overflowing and he's going to lower production and piss off those customers or is it that the orders aren't there? Lower the inventory levels? Supposedly every Tesla made is already sold so how are they lowering inventory when they supposedly don't carry any unless Musk just admitted, and no one caught, that a lot of supposed sales were actually inventory to keep the production numbers up.Then there's humanitatian Musk who according to reports DONATED, you know gave away, those solar panels and batteries to Puerto Rico. Awfull expensive PR. As usual Musk as he always does had to announce to the world through multiple news conferences what a great guy he is and all the great things he's doing while genuinely caring people do things on the quiet because they did it to help people not for the PR. Musk also got that contract from South Australia to build a battery farm and makes one wonder if he got the contract by lowballing, selling at a loss. As it is if the farm isn't up and running by a certain date he stands to lose $50 million.

In reply to by german Wunderkind

Cardinal Fang cheech_wizard Wed, 11/01/2017 - 19:08 Permalink

I routinely get 300k miles out of a Ford drive train.

Right now, I have a 2002 Explorer with 300k and a 2005 F250 with 200k.

I have had 3 other fords of 2000+ vintage with over 300k miles.

I understand what you are saying but if you just drive the damn thing and don't beat the shit out of it and maintain it properly, you can do better than 100k easy.

I have also owned 3 audis. Excellent vehicles if they are under warranty. Once they are out, you are fucked on repairs.

In reply to by cheech_wizard

RedBaron616 Cardinal Fang Thu, 11/02/2017 - 21:22 Permalink

My experience with Ford drive trains is 4-cylinders. Those are a bunch of crap. My 2000 Honda Accord SE, on the other hand, made it to 283K miles and I still sold it for $2,400. My current 2005 Accord EX is almost at 150K and runs like a champ. Expect at least another 100K at least.Anyone can make a reliable drivetrain with huge engines and transmissions. But Detroit still can't do 4-cylinders well. Never have, never will. My girlfriend's 2014 Ford Focus is a piece of crap. Have to go somewhere to replace your battery because they have to download your computer settings, change the battery, and reload the computer settings. Brilliant, Ford. Not to mention that the battery is shoved up under the firewall lip, making it impossible to get at almost for replacement. Not to mention that the battery corrodes worse than I have ever seen one corrode. Radiator doesn't have a radiator cap and there's no transmission dipstick. I wouldn't buy one for half the price. 

In reply to by Cardinal Fang

Bernanke'sDaddy iampreparedru Thu, 11/02/2017 - 00:48 Permalink

2011 E90 M353000 Milesreplaced one brake bulb.Door seals squeak; repair is a grey tape over the body where the seals meet, but my car isn't grey, so i said F it.I do oil changes more than recommended though. Every 7.5K vs 15K. Each one is ~$200-250. Oil analysis shows no metal shavings or conaminants.I drive her hard but always make sure she's warmed up and never abuse her. That having been said, I will never buy a new german car outside of a GT3 if I'm lucky, since I probably won't have the same experience.

In reply to by iampreparedru

Bernanke'sDaddy iampreparedru Thu, 11/02/2017 - 00:48 Permalink

2011 E90 M353000 Milesreplaced one brake bulb.Door seals squeak; repair is a grey tape over the body where the seals meet, but my car isn't grey, so i said F it.I do oil changes more than recommended though. Every 7.5K vs 15K. Each one is ~$200-250. Oil analysis shows no metal shavings or conaminants.I drive her hard but always make sure she's warmed up and never abuse her. That having been said, I will never buy a new german car outside of a GT3 if I'm lucky, since I probably won't have the same experience.

In reply to by iampreparedru

german Wunderkind Occident Mortal Wed, 11/01/2017 - 21:08 Permalink

BMW will need 3 years, they can reach 100k this year(q1+q2 was 50k) but that number is electrified, not electric, they also count hybrids as Electrified cars.
I3 and I8 cant beat tesla yet, but the E-mini will sell alot. a small luxury city car, for a price below the tesla m3 will be a hit in europe.

I doubt tesla will be in the EV top 10 in 2022.
VW, Mercedes, Nissan, Toyota, Ford, Frenchycars(or what ever the are called), GM, Fiat-?,BWM,Honda,Volvo,... will all have 5+ EV models out by than, and they all know how to produce 5000 cars a week.

In reply to by Occident Mortal

twh99 Occident Mortal Wed, 11/01/2017 - 17:37 Permalink

I will believe it when I see it.  BMW and Mercedes have been saying for the past 3 years, we are coming.  So far haven't seen anything from either that compares to Tesla's vehicles.  The best mileage BMW can achieve on their batteries is less than 200 miles.  Tesla's do 300.  And as far as Mercedes electric vehicle is concerned, it is vaporware.

In reply to by Occident Mortal

adr twh99 Wed, 11/01/2017 - 17:43 Permalink

Might want to check some autoshow news. The electric Porsche Mission E is coming for 2019 around the same price as the ModelS and it makes the Tesla look like a 1997 Corolla. The Chevy Bolt outsold the Model S and X last month. The Nissan Leaf is going to outsell everything over the next six months. BYD is what Tesla needs to worry about in China. 

In reply to by twh99

TheSilentMajority Wed, 11/01/2017 - 17:36 Permalink

In related news, unamed sources have confirmed that there is now an active investigation into horrific claims that an endangered capybara was viscously slaughtered to make Musks’ wig.

thisisallnonsense Wed, 11/01/2017 - 16:59 Permalink

"But we are going to build flying cars and space shuttles and underground car tunnels in the future. Our stock should be going straight up. I promise we will eventually make money"

Lumberjack Lumberjack Wed, 11/01/2017 - 18:42 Permalink

A couple more for good measure.

http://dailybail.com/home/welcome-to-hell-alberta-passes-carbon-tax-who…

http://dailybail.com/home/epa-gave-convicted-climate-expert-salary-awar…

Disclaimer: I was never paid nor receive compensation of any kind for writing, nor do I have any interests or holdings in the energy sector or have any stake politically. I know the sector well and am having fun exposing bastards.

In reply to by Lumberjack

Two Theives an… Wed, 11/01/2017 - 17:02 Permalink

But...but... all the millenials I work with LOVE Tesla! When I mention the economics (or lack thereof) their eyes glaze over "like what-ev-errrrrr".I swear I work on the set of "Clueless"!

Full Court Lug… Wed, 11/01/2017 - 17:07 Permalink

Like a lot of rich tech guys Musk has a MASSIVE ego and thinks he can do large-scale manufacturing and logistics better than companies that have been ironing out the kinks for almost a century. It's been great to see him spinning more and more desperately as it becomes clear he can't find his ass with both hands. Rumors from inside Tesla suggest he is petulant and tyrannical, and tries to micromanage people who know way more about running a factory than he ever will.Meanwhile I hear great things about the new Nissan Leaf which costs less than half what Tesla is charging for their gay taxpayer-subsidized toys. Other competitors are coming online next year. Musk had his chance to get to scale at multiple price points and he blew it; the company might stick around but it'll be a tiny niche product for rich hipsters, not a world-changing manufacturing titan like Musk faps to.