Tesla beats the street: Model 3 on track and Elon Musk confident about 2018

Coming off of a landmark Falcon Heavy launch which hurled a Tesla Roadster into space, Tesla's CEO, Elon Musk, sounded confident after sister company SpaceX's recent (breathtaking) milestone. Musk trolled analysts on a conference call, "If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production." As always, when Tesla announces their quarterly results via their Shareholder Letter and conference call, there were surprises (and some fireworks). Let's dive right in...

Above: Tesla's Model 3 (Instagram: tesladeutschland)

Financial Results

As CNBC reported, "Tesla beats the street." According to CNBC, "Tesla soothed some investor concerns Wednesday by delivering fourth-quarter results that beat analyst expectations." Here's how Tesla did compared with what Wall Street had expected: Tesla recorded record revenue of: $3.29 billion vs. $3.28 billion expected, and, their adjusted loss per share was: $3.04 vs. $3.12 expected (according to Thomson Reuters). 

“At some point in 2018, we expect to begin generating positive quarterly income on a sustained basis, operating 5,000 per week of Model 3 production and I’m optimistic that we will be GAAP profitable.” Musk forecasted.

Vehicle Deliveries

In the Shareholder Letter, Tesla stated, "In Q4, we delivered 28,425 Model S and Model X vehicles and 1,542 Model 3 vehicles, totaling 29,967 deliveries. Combined Model S and Model X deliveries in Q4 grew 10% globally compared to our prior record in Q3, and they grew 28% compared to Q4 2016." In an upbeat signal, Tesla also noted, "In stores where Model 3 is on display, customer foot traffic has increased considerably and orders for Model S and Model X have in fact increased."

Above: Tesla's Q4 deliveries vs. expectations (Source: Factset, Tesla; note: figures are rounded, exact figures in paragraph above)

Model 3

Elon Musk admitted that Tesla's Model 3 has been mired in, "Deep, deep production hell." With some gridlock at the Gigafactory battery module area, Tesla took over supplier work and "did what would probably be an 18-month production schedule... in 6-9 months." Musk noted that "module production is the limiting factor" with some manual work being executed. However, he refuted reports that cars are all hand-made saying (with a degree of snark), "it's not artisanal."

Above: Tesla shared a photo, albeit fuzzy, of Model 3's production line (Source: Tesla)

Musk has been personally on the case admitting that the management team is working "hardcore... 7 days a week" — he noted, "I was in the gigafactory on Thanksgiving." That said, Tesla is in the throes of redesigning the production line for full automation. New automated lines are landing in March. Issues surrounding the "conveyance system" in Fremont are also being resolved. Tesla said net reservations for the Model 3 "remained stable" last quarter.

Autopilot

Elon Musk explained, "I'm pretty excited about how much progress we're making on the neural net front." Once again he pushed back his coast-to-coast trip (3-6 months away) that he's been promising.  When asked about the use of Lidar by competitors, he showed his disdain for the approach, "I find it quite puzzling... They'll find themselves at a competitive disadvantage." He continued, "In my view, it’s a crutch that will drive companies to a local maximum that they will find very hard to get out of... Perhaps I am wrong, and I will look like a fool. But I am quite certain that I am not.”

Above: Tesla Autopilot (Image: Tesla) 

The shareholder letter stated, "an extensive overhaul of the underlying architecture of our software has now been completed, which has enabled a step-change improvement in the collection and analysis of data and fundamentally enhanced its machine learning capabilities. Our neural net, which expands as our customer fleet grows, is able to collect and analyze more high-quality data than ever before, enabling us to rollout a series of new Autopilot features in 2018 and beyond."

Tesla Network

At the tail-end of the analyst conference call, Musk hinted at his intentions to utilize a shared customer fleet and a Tesla-operated fleet. He's been careful not to reveal too much but the team at Ark Invest believes this is where massive opportunity lies for Tesla ahead — check out their bullish interviews on both CNBC and Fox News yesterday emphasizing the importance of the forthcoming Tesla Network.

Above: Ark Investment Management founder and CEO Catherine Wood, and, analyst Tasha Keeney talk Tesla (Source: CNBC / Fox Business)

Model Y

What's up with Model Y? Elon Musk answered, “I don’t want to jump the gun on those but I think we’ve got a good plan." Musk added, “It’s really taking a lot of lessons learned from Model 3 and saying how do we design something to be easy to manufacture instead of hell to manufacture.” Musk is boldly aiming for production capacity of 1M units per year for Model Y. He promised to reveal more in three to six months.

Tesla Semi

When asked about the potential for the Semi, Musk forecasted 100,000 units per year (steady state) for Tesla's Semi truck. In addition, he believes Tesla may be able to exceed the specs (range, acceleration, etc.) revealed last year. The Shareholder Letter also noted that, "Tesla will be the first Semi customer. We plan to use the Tesla Semi for our own logistics by transporting Model 3 components from Gigafactory 1 to Fremont. Additionally, our initial fleet customers who placed reservations for the Tesla Semi have been helping us develop the best possible truck." 

Above: Tesla Semi spy shot just captured yesterday (Reddit: jnevelson)

Powerwall and Powerpack

It was noted that the Tesla Powerpack project in Australia, the biggest battery in the world, demonstrates the potential for rapid growth in this area. Powerwall demand also "remains exceptionally high, with orders consistently above production levels" as Tesla noted that the company is rolling out Powerwall (and solar) sales efforts in both their own stores and non-Tesla locales (i.e. Home Depot). Tesla states the battery energy storage production ramp "is just as steep as with Model 3... we aim to deploy at least three times the storage capacity we deployed in 2017."

Solar

Tesla provided updates noting, "Initial production of Solar Roof at the Gigafactory 2 in Buffalo started in Q4... When fully scaled, Gigafactory 2 will be able to produce enough solar cells to add more than 150,000 new residential solar installations every year... With demand outpacing production, we expect our backlog to remain in excess of one year for the next several quarters." Solar sales were down, however, as the company pivots towards higher margin offerings.

Sales and Service

More sales and service traction was announced as Tesla stated, "During Q4, we opened 12 new store and service locations resulting in 330 total locations worldwide at the end of the year. Service capacity more than doubled in 2017, partially due to new locations, but also through a 50% increase in productivity of existing service locations, as well as the significant expansion of our Mobile Service fleet, which now has 230 vehicles."

Above: Tesla mobile service in action (Image: InsideEVs)

Superchargers

Supercharger expansion continues as Tesla noted, "In 2017, 338 new locations opened for a total of 1,128 Supercharger stations globally. Between Supercharger and Destination Charging, we increased capacity by over 90%. In preparation for Model 3, we opened several large Supercharger stations along our most popular corridors, including between Los Angeles and San Francisco and between Los Angeles and Las Vegas, both of which have a customer lounge, a café, a display of our energy products and 40 charging stalls."

2018 Forecast

So, what's ahead for 2018? Tesla is forecasting, "Model S and Model X deliveries to be approximately 100,000 in total constrained by the supply of cells with the old 18650 form factor." For the Model 3, Tesla notes, "we continue to target a weekly Model 3 production rate of 2,500 by the end of Q1 and 5,000 by the end of Q2. Also, we are focused on achieving our target of 25% gross margin for Model 3 after our production stabilizes at 5,000 cars per week."

Above: Attention to detail (Instagram: aero_werkz)

Usually mum on battery advances, Tesla teased cost reductions, "This is the year when we believe we can achieve true cost parity - producing a premium EV like the Model 3 will be no more expensive than producing an ICE vehicle, something that many believe is not yet possible." 

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Source: Tesla Fourth Quarter Financial Results Shareholder Letter and Conference Call