Tesla Second Quarter Has Slight Revenue Miss and More Per Share Losses Than Expected

Tesla has released its second quarter earnings.

The analysts expected $6.41 billion in revenue and a forty cents on adjusted per share loss.

Revenue reported was $6.35 billion in revenue and a $1.21 adjusted per share loss. The revenue miss and losses are disappointments and Tesla is trading down about 11% in the after-market. Quarterly revenue was up 60% year-over-year.

Tesla’s longer-term moves are working out. The Tesla Model 3 has strong production, sales and strong demand. The China Gigafactory (Gigafactory 3) is about to be completed. China’s electric car market is three times bigger than the US electric car market. Gigafactory 4 in Europe is underway. Model Y will be arriving in 2020 and the small SUV segment is three times bigger than the Model 3 segment.

There is also the vast potential of the fully self-driving car and the self-driving taxi fleet.

Tesla could break-even in the third quarter and be back to profitability in the fourth quarter.

Fremont has demonstrated capability of a 7,000 Model 3 vehicles per week run rate, which they continue to work to increase. We aim to produce 10,000 total vehicles of all models per week by the end of 2019.

In the second quarter of 2019, Tesla achieved record deliveries of 95,356 vehicles and record production of 87,048 vehicles, surpassing our previous quarterly records of ~91,000 deliveries and ~86,600 units produced in Q4 of 2018. This is an important milestone as it represents rapid progress in managing global logistics and delivery operations at higher volumes.

As a result of this growth and operational improvements, Tesla generated $614 million of free cash flow (operating cash flow less capex) in Q2. Combined with our public offering of equity and convertible bonds (net proceeds of $2.4 billion), they ended the quarter with $5.0 billion of cash and cash equivalents, the highest level in Tesla’s history. This level of liquidity puts us in a comfortable position as they prepare to launch Model 3 production in China and Model Y production in the US. As a result of their strong deliveries and continued progress on cost efficiencies, our GAAP net loss declined significantly compared to Q1.

Gigafactory Shanghai continues to take shape, and in Q2 we started to move machinery into the facility for the first phase of production there. This will be a simplified, more cost-effective version of our Model 3 line with capacity of 150,000 units per year – the second generation of the Model 3 production process. Just like in the US, the Model 3 base price of RMB 328,000 is consistent with its gas-powered competitors, even before gas savings and incentives. Given Chinese customers bought well over a half million mid-sized
premium sedans last year, this market poses a strong long-term opportunity for Tesla. We are looking forward to starting production in China by the end of this year. Depending on the timing of the Gigafactory Shanghai ramp, they continue to target production of over
500,000 vehicles globally in the 12-month period ending June 30, 2020.

Model Y: Preparations for Model Y production in Fremont began in Q2. Due to a significant overlap of components between Model 3 and Model Y, we are able to leverage existing manufacturing designs in the development of the Model Y production facilities. Additionally, they are making progress managing Model Y cost with only a minimal cost premium expected over Model 3. Due to the large market size for SUVs, as well as higher ASPs, we believe Model Y will be a more profitable product than the Model 3.

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