Tesla (TSLA) Misses Q1 EPS by $2.21, Reaffirms Guidance of 360K to 400K Vehicle Deliveries in 2019

(Updated - April 24, 2019 5:18 PM EDT)

Tesla (NASDAQ: TSLA) reported Q1 EPS of ($2.90), $2.21 worse than the analyst estimate of ($0.69). Revenue for the quarter came in at $4.54 billion versus the consensus estimate of $5.33 billion.

OUTLOOK Although we are driving towards higher internal goals, we reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, representing an increase of approximately 45% to 65% compared to 2018. Please note that vehicle production will be significantly higher than deliveries, as it takes several weeks to transport cars from California to distant customers, especially in other countries, where they must also be processed by customs. Deliveries, production and customer orders, which are all materially different, are often conflated when analyzing Tesla.

If our Gigafactory Shanghai is able to reach volume production early in Q4 this year, we may be able to produce as many as 500,000 vehicles globally in 2019. This is an aggressive schedule, but it is what we are targeting. However, based on what we know today, being able to produce over 500,000 vehicles globally in the 12-month period ending June 30, 2020 does appear very likely.

We continue to target a 25% non-GAAP gross margin on Model S, Model X and Model 3, depending on variant mix and option take rates as our product offerings change. In response to the operational challenges we experienced with international expansion in Q1, we are in the process of balancing our regional vehicle builds throughout the quarter. This provides an opportunity for additional cost efficiencies in our factory, supply chain, logistics operations and delivery centers.

With the recently announced product improvements on Model S and Model X, as well as continued expansion of Model 3 globally, we expect our order rate to continue to increase throughout the year as our production levels increase. We believe we will deliver between 90,000 and 100,000 vehicles in Q2. Although it is possible to deliver a higher number of vehicles, we believe it is important to begin unwinding the "wave" approach to vehicle deliveries, where overseas cars have been made in the first half of the quarter and North American cars have been made in the second half. This puts extreme stress on Tesla, negatively affects our working capital needs and adds to our cost structure.

Energy generation and storage revenue should increase significantly in 2019. This increase is driven mainly due to the storage business as we increase production to address our backlog in Powerwall orders and deliver on our pipeline of orders for commercial storage and an expected growth in retrofit solar deployments in the second half of 2019. The gross margin of our Energy generation and storage business should grow as the energy storage margin continues to improve from its current level.

We expect our Services and Other business to grow as our fleet size and used car volumes increase. We have refocused on operational efficiency of these businesses and are targeting gross margin improvements throughout this year.

Our 2019 capex, the vast majority of which will be to grow our capacity and develop new vehicles, is expected to be about $2.0 to $2.5 billion. We believe this amount should be sufficient to continue to develop our main projects, such as Gigafactory Shanghai, Model Y and Tesla Semi, as well as for the further expansion of our Supercharger and service networks.

Operating cash flow less capex should be positive in every quarter including Q2. As the impact of higher deliveries and cost reduction take full effect, we expect to return to profitability in Q3 and significantly reduce our loss in Q2.

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