Posted on October 24, 2019 by Matt Pressman
Tesla beat the street. According to Bloomberg, "The electric-car maker earned $1.86 a share in the third quarter, exceeding the most optimistic projection by a wide margin and beating the consensus estimate for a 24-cent loss." Yes, Tesla showed a profit. And the stock price soared as "shares climbed as much as 21% to $308.50," in after hours trading after 3Q earnings were reported by the electric automaker.
Above: Tesla's Model 3 (Photo: Casey Murphy, EVANNEX)
So what happened? Discussing CEO Elon Musk earlier this week, Tesla Chair Robyn Denholm provides a clue when she remarked (via Fortune), "I don't expect normalcy." She added, "You can see the progress. Nobody, 15 years ago, was thinking about electric vehicles or sustainable energy with batteries. Today, the fact that the rest of the industry is moving that way is phenomenal.”
Above: Loup Ventures' Gene Munster provides salient feedback on Tesla's 3Q earnings report (YouTube: CNBC Television)
Tesla's 3Q numbers were anything but normal. Sure, revenue (as predicted) was a slight miss — Tesla reported revenue of 6.3 billion, just shy of expectations. That said, the company's earnings report was packed with positives to whet the appetite of investors. To recap key takeaways, Gene Munster (via Loup Ventures) provides five valuable insights.
Munster explains, "The business model is slowly shifting to high-margin software. Tesla recognized $30M in deferred revenue related to Autopilot this quarter... [and] Tesla currently has just under half a billion in unrecognized revenue on the books. To illustrate potential margin improvement, at a 100k/quarter delivery run rate, every ~$60M in FSD deferred revenue recognized adds about 1% to auto gross margins."
In addition, "Tesla is now expecting volume production of Model Y (1,000 per week) by mid-2020. This is 6-9 months ahead of what we had been expecting. Long-term, the company expects Model Y to account for about half of total deliveries." According to Musk, the crossover could actually outsell the Model S, X and 3 combined.
According to Tesla, the company "reiterated their guidance of delivering at least 360,000 vehicles in 2019. This implies that Tesla will deliver greater than 104k vehicles in Q4 vs expectations of 104k. This would result in y/y delivery growth of 16%, in line with Sep-19’s y/y growth."
As the sales mix continues to tilt towards Model 3 (in favor of S and X), many expected automotive gross margins to suffer. That wasn't the case. Munster notes, "Automotive gross margins were 22.8% vs. about 19% last quarter.... The takeaway: manufacturing efficiencies related to labor, logistics, and procurement are improving."
It's reported that, "Gigafactory Shanghai is now ahead of schedule and production is expected to start this quarter... China currently represents about 11% of total sales, but that percentage will grow once the Gigafactory is operational and vehicle sales don’t face a price headwind from import tariffs of >15%." Check out the photo gallery from Tesla's Shareholder Letter to see the progress at Gigafactory 3.
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