February 10, 2016

Tesla forecasts 2016 growth; Model S crushes competition

Tesla Motors (NASDAQ: TSLA) 4Q / Full Year 2015 Financial Results Shareholder’s Letter and Webcast* announced some rather big news today. Tesla forecasted its deliveries this year will increase 60-80% — bringing total 2016 deliveries up to 80,000-90,000 for the Model S and X. In addition, Model S is the new king of the luxury segment, dethroning the likes of Mercedes, BMW, Audi, Porsche, and Lexus. Model X is ramping quickly, Model 3 is on schedule, and Tesla Energy is showing great potential. Lots of news to report here... we’ll recap the key highlights for you below.

Tesla Model S vs. the Competitive Set

According to Tesla's Shareholder's Letter, "In the U.S., just over three years after entering the market, Model S took share from all incumbent manufacturers to become the number one selling comparably priced four-door sedan. In fact, Model S was the only vehicle in its class with growing sales last year. Even on our competitors’ home turf and in countries without government incentives to purchase electric vehicles, Model S is winning. For example, in Switzerland, Model S outsold the Mercedes Benz S-Class, the BMW 7- Series, the Porsche Panamera and the Audi A-8 combined for the full year, and also outsold the Mercedes Benz E-Class... [and] across all of Europe last year Model S outsold the Audi A8 and A7 combined and the BMW 7-Series and 6-Series combined."

Tesla CEO Elon Musk said on the webcast that Tesla has a hold on 25% of the premium sedan market, and noted: “It’s really rare to see situations like this.” He called the car’s ability to take away market share from all its competitors, “a great achievement of the Tesla team, and I think it’s also great for the world, because that’s 25,000 fewer gas guzzlers out there on the road.” Musk explained that this is especially remarkable, given that, unlike it's competition, Tesla does not advertise, pay for endorsements, or discount cars for anyone.

Positive Cash Flow

According to Tesla's Shareholder's Letter, "In Q4 alone, we generated $179 million of positive cash flow from our core operations defined as cash flow consumed in operations of $30 million plus cash of $209 million received from vehicle sales to our leasing partners. Growing worldwide demand for Tesla vehicles, supported by record production, allowed us to achieve this result as we increased deliveries by more than 50% from just the prior quarter."

“My mandate from Elon is clear: cash is king,” said Tesla's new CFO, Jason Wheeler. Musk added: “We expect to be positive cash flow next month, and continue that into Q2 and beyond.”

2016 Forecast

According to Tesla's Shareholder's Letter, "For 2016, we are planning for even faster delivery growth than last year. We plan to be net cash flow positive and achieve non-GAAP profitability for the year... [and] we plan to deliver 80,000 to 90,000 new Model S and Model X vehicles in 2016... Achieving these results in 2016 should leave us well positioned for 2017, when we plan to launch Model 3 and take another significant step towards our mission of accelerating the world’s transition to sustainable transportation."

Musk added on the webcast, “Tesla is approximately doubling its cumulative sales every year, I’m not sure if this has happened in the car industry for nearly a century.”

Tesla Model X

Musk explained on the webcast, “The mistake we made with the Model X, which I really think we’ve taken to heart at Tesla, is we put too many new features and technologies, too many great things at once, into a new product... I do think there was some hubris there, with the X. The end result there, however, is the Model X is an amazing car. I think it’s probably the best car ever."

"I don’t think anyone’s going to make a car like this again. I’m not sure Tesla is going to make a car like this again,” Musk joked.

Tesla Model 3

“We’re really looking forward to the unveiling of the Model 3 at the end of next month,” Musk said during the webcast. “I think it will be well received, and then getting into production and delivery at the end of next year.” Tesla confirmed that the Model 3 will be unveiled on March 31st. “The Model S was really the first car we ever made ourselves,” Musk said. “So we were designing to make it work as opposed to designing for ease of manufacturing, whereas the Model 3 is really designed for ease of manufacturing.”

“You should think of the Model 3 as sort of really competing in kind of the BMW 3 series or Audi A4 market,” Musk said. In order to forecast potential Model 3 demand, Musk noted: "I would like to point you to the large luxury sedans segment. If the Model 3 behaves at all like the Model S in its market segment, it doesn't seem like we are going to be demand constrained.” And, post-earnings, Musk took to Twitter with two important tweets to annouce how Model 3 deposits will work, see below...

No signature series for Model 3. Same reservation amount for all.
— Elon Musk (@elonmusk) February 11, 2016

He also answered a question on Twitter that this launch timing will be global (not just U.S. market) in its scope.

Autopilot

“Tesla Autopilot is learning at the rate of over a million real-world miles per day... [while] Motor Trend called Autopilot 'otherworldly,' Road & Track remarked that the system was 'almost entirely unflappable,' and TechCrunch called the ride a 'mind-blowing experience,'” the Shareholder's Letter reports.

And Musk himself added during the webcast: “We just relentlessly make things better,” elaborating that, for the Model S, there’s an average of 20 improvements per week.

Tesla Energy / Gigafactory

“In our first main markets, Australia and Germany, we have seen Tesla Energy inbound sales leads quickly exceeding vehicle sales leads, more than doubling our total potential Tesla customer inquiries,” the Shareholder Letter explains. “We are excited about the potential growth in vehicle sales this new energy customer base could also represent.”

Battery “production is on track, we feel really good about that,” said J.B Straubel, Tesla’s chief technology officer, during the webcast. “Production started off as planned in the Gigafactory in Q4. Deliveries are on track. We’re starting shipments of Powerwalls and Powerpacks worldwide. We’re growing out the sales operations and sales teams around the world, so from an execution point of view, I think we feel really good with where we’re at.”

Conclusion

So how did the stock market react? Shares of TSLA jumped as much as 14% during after-market hours...

“I feel very good about things right now,” Musk said during the webcast. It sure seems so as it appears he's (once again) putting his money where his mouth is — according to Electrek, "the company released a new SEC filing confirming that CEO Elon Musk exercised another $108 million worth of options just a few weeks after exercising over $100 million.” Yes indeed, it's pretty compelling when the company CEO is "all in" like this — kudos to Musk and the Tesla team, we're looking forward to an exciting 2016 for Tesla Motors.

For the full conference call recording, listen below...