Tesla Motors, Inc. (TSLA) Tops Q1 EPS by 2c

(Updated - May 7, 2014 4:12 PM EDT)

Tesla Motors, Inc. (NASDAQ: TSLA) reported Q1 EPS of $0.12, $0.02 better than the analyst estimate of $0.10. Revenue for the quarter came in at $620.54 million versus the consensus estimate of $699.1 million.

Deliveries were 6,457 Model S units.

Q2 & 2014 Outlook

We expect to deliver about 7,500 Model S vehicles in Q2 as we move toward our goal of more than 35,000 Model S deliveries for the year. We also plan to produce 8,500 to 9,000 cars in the quarter, representing a 13% to 19% increase over Q1. Planned production is again higher than deliveries because of the growing pipeline of intransit cars to Asia and Europe that have been built-toorder for customers. This includes cars destined for right hand drive markets. The quarterly gap between production and deliveries is expected to decline in future quarters. Battery cell supply will still constrain our production in Q2 but should improve in Q3.

We have started Tesla leasing, but due to the lead times between vehicle orders and deliveries we expect to only lease about 200 cars in Q2. Many new orders for leased vehicles received in Q2 will be delivered in Q3, so the number of leased vehicles should grow over time.

For leased vehicles, we will recognize lease revenue over the term of the lease in both our GAAP and non-GAAP financials. In contrast, automotive OEMs recognize full revenue for the price of the vehicle, even if that vehicle is eventually leased, because the vehicle is first sold to an independent dealer. Therefore, to facilitate comparisons with other automakers, we plan to include a supplemental table in future shareholder letters that summarizes the quarterly aggregate price of vehicles leased to customers.

We have just commenced production of Tesla powertrains for the Mercedes B-Class vehicle, a significant milestone in the development of the program. We expect to ramp up production shortly and see continued growth during the year. We expect non-GAAP automotive gross margin to increase slightly from Q1 to Q2. As manufacturing efficiency and part costs continue to improve, we believe a 28% non-GAAP automotive gross margin by Q4 of this year is still an achievable target.

Q2 operating expenses are expected to grow sequentially by about 30% for R&D and 15% for SG&A. Despite the start of leasing vehicles, investments in R&D and geographic expansion, we expect to be marginally profitable in Q2 on a non-GAAP basis. Based on our current stock price, the diluted shares outstanding are projected to be about 142 to 144 million in Q2.

We still plan to invest $650-850 million for the year in capital expenditures for increased production capacity, growth in our store, service center and Supercharger footprints, Model X and S development and start of Gigafactory construction. With all these initiatives, we expect to be slightly free cash flow negative in 2014, before considering the equity required for leasing.

This should be another year of focused execution of our aggressive expansion plans.

For earnings history and earnings-related data on Tesla Motors, Inc. (TSLA) click here.

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