Tesla (TSLA) Tops Q3 EPS by 2c; Deliveries at 7,785

(Updated - November 5, 2014 4:17 PM EST)

Tesla (NASDAQ: TSLA) reported Q3 EPS of $0.02, $0.02 better than the analyst estimate of $0.00. Revenue for the quarter came in at $851.8 versus the consensus estimate of $893.6 million.

Deliveries were 7,785 in the quarter.

Outlook

Outlook

Production for the full year is expected to be about 35,000 cars, despite entering Q4 with a deficit in production of 2,000 units from Q3. However, the loss of these cars in Q3 means fewer available to deliver in Q4 and our ability to ramp up production in Q4 is constrained by the complexity of launches related to dual motor and autopilot hardware. Consequently, we expect to deliver approximately 33,000 vehicles for 2014. This is 50% above 2013 deliveries, but 5% to 7% below prior estimates for 2014. Previous projections for 2015 are unaffected.

One of the significant actions we intend to take in order to reduce manufacturing complexity is to simplify our product offering by reducing the number of options and powertrain combinations. This will enhance our ability to scale production in 2015. We expect to lease about 3,000 to 3,500 cars in North America during Q4. A large portion of these leases will be financed through our new bank partner leasing program. Similar to the accounting for our RVG program vehicles, for GAAP purposes, revenue on vehicles leased via our banking partners will be deferred and recognized over the lease term, but added back to non-GAAP revenue because we receive all of the cash up front on these leases.

Gigafactory Construction - Nevada

We expect non-GAAP automotive gross margin to exceed 28% in late Q4, excluding ZEV credits, as manufacturing efficiencies and part costs continue to improve. Factors weighing on the automotive gross margin for the full quarter include delivery of vehicles built in Q3 with lower manufacturing efficiency and slightly lower average selling prices from weaker European currencies. Model S gross margin itself is generally higher than automotive gross margin, which is moderately suppressed due to the significantly lower gross margin on powertrain sales. ZEV credit revenue in Q4 is expected to be quite minimal based on our existing arrangements. Q4 non-GAAP operating expenses are expected to grow sequentially by just under 10% for R&D and SG&A as we wind down Dual Motor development. We expect to earn $0.30 to $0.35 per share in Q4, on a non-GAAP basis. Based on our current stock price, we project between 143 million and 145 million diluted shares outstanding in Q4.

Work continues on the finalization of Model X with the testing of Alpha prototypes and initial builds of the first Beta prototypes. Model X powertrain development is almost complete with the early introduction of Dual Motor drive on Model S. We recently decided to build in significantly more validation testing time to achieve the best Model X possible. This will also allow for a more rapid production ramp compared to Model S in 2012.

In anticipation of this effort, we now expect Model X deliveries to start in Q3 of 2015, a few months later than previously expected.

This also is a legitimate criticism of Tesla – we prefer to forgo revenue, rather than bring a product to market that does not delight customers. Doing so negatively affects the short term, but positively affects the long term. There are many other companies that do not follow this philosophy that may be a more attractive home for investor capital. Tesla is not going to change. We plan to spend about $350 million in capital expenditures in Q4 as we continue to invest in even more production capacity, accelerate the pace of Gigafactory construction, and continue vehicle development and our global expansion.

Asin the past, we plan to provide 2015 financial guidance in our Q4 Shareholder Letter. 2015 should be another exciting year for Tesla, with accelerating revenue growth and expanding margins.

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

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