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Tesla (TSLA) Q1 Loss Wider than Expected; '16 View Upbeat

Tesla Motors, Inc. TSLA reported adjusted loss (excluding one-time items other than stock-based compensation expense) of $1.24 per share in the first quarter of 2016, much wider than adjusted loss of 70 cents recorded in the year-ago quarter. Moreover, the loss was significantly wider than the Zacks Consensus Estimate of a loss of 78 cents.

The company’s first-quarter 2016 adjusted results exclude the impact of non-cash interest expenses related to convertible notes and other borrowings of 22 cents per share, and deferred gross profit of 67 cents for Tesla’s Model S cars due to lease accounting. On the other hand, Tesla’s first-quarter 2015 adjusted results excluded the impact of non-cash interest expenses related to convertible notes and other borrowings of 15 cents per share, and deferred gross profit of 37 cents for its Model S cars due to lease accounting. Including these items, the company reported a net loss of $2.13 per share in first-quarter 2016, compared with a net loss of $1.22 in the year-ago quarter.

Adjusted revenues increased 45% to $1.60 billion in the reported quarter, in line with the Zacks Consensus Estimate. On a reported basis, revenues jumped 22% to $1.15 billion.

Tesla delivered 14,810 cars in the quarter. The company manufactured 15,510 vehicles in the quarter, up 10% from the fourth quarter of 2015.

In the first quarter of 2016, the electric automaker directly leased 1,405 cars worth $149 million of aggregate transaction value.

Revenues (on a reported basis) from Automotive sales rose to $1.03 billion in the quarter from $893.3 million a year ago. Revenues (on an adjusted basis) were $1.48 billion in the reported quarter.

Services and Other revenues (on a reported basis) surged 160% to $121 million from $46.6 million in the year-ago quarter.

Tesla Energy recorded good performance in the quarter. The company delivered over 25 MWh of energy storage to customers in four continents during the quarter. Tesla also delivered over 2,500 Powerwalls and nearly 100 Powerpacks in the quarter throughout North America, Asia, Europe and Africa.

Tesla’s first-quarter 2016 adjusted gross margin was 21.7%. Adjusted Automotive gross margin was 20% in the quarter.

Financial Position

Tesla had cash and cash equivalents of $1.44 billion as of Mar 31, 2016, compared with $1.20 billion as of Dec 31, 2015. Long-term debt totaled $3.12 billion as of Mar 31, 2016, compared with $2.65 billion as of Dec 31, 2015.

Cash outflow from operating activities amounted to $249.6 million in the first quarter of 2016, compared with $131.8 million a year ago. Capital expenditures decreased to $216.9 million from $426.1 million in the first quarter of 2015.

Business Expansion

Model S net orders went up 45% in the reported quarter, driven by increased orders in North America, Europe and Asia. Model S was the market share leader in North America and Europe among all comparably priced sedans.

In Apr 2016, Tesla launched the refreshed Model S with a better front look, adaptive headlights and faster charging systems, which provide a higher range, with a minimum increase in price. The vehicle also features the same HEPA air filtration system as that of Model X.

In order to support the rising demand for its vehicles, Tesla is expanding its sales network, service and Superchargers. The automaker will be opening 70 additional retail and service locations in 2016. With this, the company will have a total of 300 retail and service locations. The automaker has also energized 29 Supercharger locations and 311 destination charging locations in the first quarter. Tesla has 3,600 and 3,700 global Supercharger and destination connectors.

Tesla plans to produce the first cell at its Gigafactory in the fourth quarter of 2016.

Model 3 Update

Tesla is witnessing tremendous demand for Model 3. In the first week after unveiling the vehicle, the automaker recorded 325,000 reservations, implying about $14 billion in future sales. The vehicle’s production and deliveries will start from late 2017.

Outlook

Based on the rising demand for Model 3, Tesla plans to advance production of 500,000 total units (including Model S, Model X, and Model 3) to 2018, two years earlier than planned. This will increase the company’s capital expenditure. Tesla now expects capital expenditure for 2016 to be 50% higher than the previous forecast of $1.5 billion. This will adversely impact the company’s cash flow generation. However, based on the rising demand for Model 3, this should be profitable in the long run.

In the second quarter of 2016, Tesla expects to deliver 20,000 vehicles, representing a 30% increase sequentially. As the supply chain constraint has been solved, the company expects to produce 2,000 vehicles per week during the quarter. The automaker will also focus on delivering as many of these vehicles as possible and the remaining will be delivered in the third quarter of 2016. Second-quarter deliveries are expected to be around 17,000 vehicles. With this, Tesla is confident of delivering around 80,000–90,000 new Model S and Model X vehicles in 2016. Deliveries in 2016 will be supported by rising demand for Model S and Model X, along with better production in the second quarter as well as the second half of the year.

In 2016, automotive gross margin is expected to improve, backed by cost reductions for Model S and improving production efficiency of Model X. By the end of 2016, gross margin from Model X should be around 25%. The company also expects further improvement in Model X margin in 2017. Model S gross margin will be around 30% by the end of the year.

Operating expenses in the second quarter of 2016 are expected to increase marginally from the first quarter, as the company grows the customer support infrastructure and also focuses on expense management. For 2016, operating expenses are estimated to increase by 20%–25% due to development expenses related to Model 3.

Zacks Rank

Currently, Tesla carries a Zacks Rank #3 (Hold). Some better-ranked automobile stocks include Lear Corp. LEA, Wabash National Corp. WNC and Oshkosh Corporation OSK. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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TESLA MOTORS (TSLA): Free Stock Analysis Report
 
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