Disclaimer: The content below should in no way be mistaken for investment advice.
Talk about a difference from one week to the next. Last week I listened to Apple’s conference call which, as usual, was very slow and boring. Last night I listened to Tesla’s conference call where the action began even before the call started.
Unlike most other companies I follow who release earnings via a press release sometime after the market closes, Tesla instead publishes a shareholder letter which goes into much greater detail. This allows investors to go into the call better prepared and gives analysts a chance to focus on the item(s) they feel are most relevant so they can (hypothetically) make the best use of their 1-2 questions for management.
Tesla to Accelerate Growth Timeline
Since Tesla is in growth mode and has many projects in motion there is never really a shortage of interesting information in their letters. Yesterday, however, the news was much bigger than usual. CEO Elon Musk has stated for years now that the goal of the production ramp was to hit 500,000 vehicles in 2020. Yesterday, he moved the target date up two years to 2018, and raised the 2020 figure to roughly one million vehicles. Much of the reason for doing this was the overwhelming demand for the $35,000 Model 3 vehicle, whose reservation numbers rose to over 400,000 within a month (yesterday we did not get an update on this figure, surprisingly).
To put the 2018 goal into perspective, Tesla produced about 32,000 vehicles in 2014, 50,000 last year, and for 2016 they expect to produce 80,000-90,000. So they are looking to increase production more than 5x in two years.
This news pretty much monopolized the conference call, with many analysts asking various versions of the same question, specifically “What gives you the confidence that you’ll be able to ramp up so fast?”
Elon divulged that they have set an internal goal of starting volume production on the Model 3 on July 1, 2017 and producing between 100,000 – 200,000 by the end of next year. He stressed that it was imperative to get suppliers to agree to this date since something always slips and with a mid-year date in mind they’d still have room to deal with such issues. Even if 99% of suppliers are on time you can’t deliver the vehicle because of that remaining 1%, he pointed out.
Doubters and Believers
The reaction to this news is split between those who already doubted Tesla and those who consider themselves believers. Tesla’s past actions have provided each side with enough reason to think they have the better understanding of Tesla. By missing production goals by about 10% in each of the past two years, the doubters think this 500,000 target shouldn’t be taken seriously. On the other hand, believers see that Musk sets overly aggressive goals and then comes within 10% of reaching them. They figure that even if 500,000 turns out to be 450,000 this will be a huge success.
Some of the other highlights of the call include:
- Increased demand for Model S and Model X after the Model 3 reveal
- Gigafactory ahead of schedule
- Improved financial position this quarter
- Confirmation that a capital raise is imminent
- Announcement of new hires to oversee production coming shortly
- Tesla Energy to have higher rate of growth than vehicles
As for the actual numbers, Tesla reported a Q1 loss of 57 cents on $1.6B in revenue. Since Tesla is in rapid growth mode, the numbers aren’t as important as for a more mature company like Apple. This doesn’t mean that it isn’t important for Tesla to make a profit, but the primary focus for investors and media is on vehicle production totals.
It will certainly be interesting to see how things play out moving forward as Tesla will soon raise cash and give more details on its aggressive vehicle production ramp. Expectations are also that the Gigafactory will have a grand opening by the end of June, which is sure to result in a few more surprises in typical Tesla fashion.