Tesla Motors (TSLA) Sees FY12 Sales Well Below Street; Issues Q3 Warning; Cites Model S Sales

September 25, 2012 6:35 AM EDT
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Tesla Motors (Nasdaq: TSLA) issued the following guidance update:

Consistent with our anticipated slower ramp in production and customer deliveries, we now anticipate revenue for 2012 of $400 to $440 million, primarily reflecting a decrease in the number of Model S vehicles we plan to deliver in 2012. We also believe that third quarter revenue will be in the range of $44 to $46 million, reflecting lower deliveries of Model S as well as the deferral of revenue associated with development services.

*** The Street is at $542.6 million, and $83.03 million, respectively.

In the third quarter of 2012, we anticipate that our gross margin will be negatively affected primarily by the limited number of Model S vehicles we intend to deliver, the consequent allocation of all manufacturing and labor overhead costs across a smaller number of vehicles, manufacturing inefficiencies, higher costs for initial parts, and the delay of development services revenue from Daimler, resulting in a negative gross margin in the range of 15% to 18%. Revenue from Daimler will be recognized when we reach final agreement upon the development milestones and related payments which we anticipate finalizing in the fourth quarter of 2012. In the fourth quarter we expect gross margin to improve substantially and turn positive mainly due to higher Model S volume, as well as cost efficiencies and planned cost reductions.

We expect R&D spending for the third quarter to be approximately 20% lower than the second quarter, as this will be the first quarter in which a material amount of our Model S manufacturing expenses will be reflected in cost of goods sold rather than in research and development and as one-time Model S development expenses decline. We also expect selling, general and administrative expenses for the third quarter to increase modestly over the prior quarter as we continue to increase our vehicle selling and servicing capabilities. We believe capital expenditures will be between $220 and $240 million for 2012.

For 2013, we plan to exceed our objective of 20,000 Model S deliveries in 2013 and expect to achieve a gross margin of 25% in 2013 once we achieve manufacturing efficiencies and planned cost reductions associated with higher volume production and improvements in the margins of our powertrain sales.

We have now fully drawn down our $465 million DOE Loan Facility. As of September 30, 2012, and inclusive of the net proceeds of this offering, we expect to have approximately $228 million in principal sources of liquidity from our cash and cash equivalents and current restricted cash. This will include our cash and cash equivalents in the amount of approximately $203 million which will include our investments in money market funds, as well as restricted cash of approximately $25 million which will include cash of $15 million deposited in dedicated DOE accounts in accordance with the requirements of our DOE Loan Facility and which will be used for repayment of all principal and interest that will come due on December 15, 2012. We currently expect to be close to free cash flow breakeven (defined as cash flows from operations less capital expenditures) at the end of the fourth quarter of 2012.

DOE Loan Covenant Update

On January 20, 2010, we entered into a loan facility with the Federal Financing Bank (FFB), and the DOE, pursuant to the ATVM Incentive Program. We refer to the loan facility with the DOE, as amended, as the DOE Loan Facility. The DOE Loan Facility requires, among other things, that we comply with certain financial covenants and fund a debt service account. The financial covenants include a minimum current ratio, which is a ratio of our current assets to our current liabilities (taking into account certain categorical exclusions); a minimum fixed charge coverage ratio, which is a ratio of consolidated adjusted EBITDA to consolidated fixed charges; and a maximum ratio of total liabilities to stockholder equity. The DOE Loan Facility was amended in June 2011 to expand our cash investment options, in February 2012 to modify the timing of certain future financial covenants and funding of the debt service reserve account, and in June 2012 to allow us to effect certain initiatives in our business plan. We entered into another amendment with the DOE in September 2012 that: (i) removed our obligation to comply with the current ratio financial covenant for the third quarter of 2012; (ii) amended our funding requirements for the dedicated debt service reserve account to (a) postpone until February 15, 2013, $14.6 million of the $28.8 million pre-funding payment originally due on October 15, 2012; and (b) make additional pre-funding payments, beginning June 15, 2013, of between $14.2 million to $14.5 million each quarter to pre-fund the quarterly principal and interest payments due from September 15, 2013 through December 15, 2014; and (iii) added a covenant requiring us to work in good faith with the DOE to develop an early repayment plan for our outstanding DOE Loan Facility on terms satisfactory to the DOE.

Based upon our current financial forecast, we currently anticipate that if we do not raise the proceeds anticipated from this offering and do not otherwise adjust our operations accordingly or amend the DOE Loan Facility, we may not be compliant with the current ratio covenant for the quarterly period ending March 31, 2013. For the quarters ending September 30, 2013 and December 31, 2013, we currently anticipate that without taking advantage of additional revenue opportunities or making adjustments to our spending, we expect that we will need to seek an amendment from the DOE to modify the fixed charge coverage ratio covenant. Moreover, we currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014 and the two subsequent quarters.

We are currently working cooperatively with the DOE to obtain these amendments. For more information about the potential consequences of a failure to comply with or obtain waivers from the financial covenants of our DOE Loan Facility, please see “Risk Factors – Risks Related to Our Business and Industry – We are dependent upon our loan facility from the United States Department of Energy.”

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