The best way to understand and digest yesterday’s TSLA Q4 2017 earnings report is stop reading all the articles in the media about it, and just go directly to the source. Oftentimes, reporters and journalists miss the most important parts of the report, and people who rely on them are left with shallow headlines that don’t promote understanding but just promote the reporter’s biased view on the company. It’s tough to be a great investor if one relies on headlines from the media. Rather, if you go directly to the source and actually read company’s earning reports and actually listen to their conference calls (or at least the transcripts) you’ll be ahead of 99% retail investors out there.
As long as you read those two links, you’ll be better off than 99% of the people out there who are relying on bait-click headlines and shallow reporting.
As for my thoughts on the earnings report, here’s my take.
1. Overall, I think the earnings report was a positive. I’d give it a 7 out of 10. The reason being is because anything not very negative is actual positive to Tesla at this point. They are at a crucial juncture of ramping Model 3 and the absence of bad news means things are going well.
2. Cash balance going into Q1 2018 was $3.4 billion, which is very healthy and rather surprising. They also raised $500M+ is a lease securitization deal in Q1. So it looks like Tesla is not in need of an urgent capital raise. However, I wouldn’t rule out a capital raise in the next several months as Tesla might opt to increase their cash cushion.
3. The Model 3 ramp is slow. While on their shareholder letter, Tesla said they’re still “targeting” 2500/week by end of Q2 and 5000/week by end of Q3, in the conference call it seemed like those goals might be difficult to reach. Elon shared that the need to ship battery module production equipment from Germany that will arrive some time in March, and that equipment will be necessary to go to 2000-2500 cars/week. Since it might take a few weeks to set up the equipment, I’m not expecting Tesla to hit their goal of 2500 cars/week by end of Q1. Rather, I think Q1 average production rate will likely be around 1000 cars/week. In order to hit 5000 cars/week, Elon said they need to work on “parts conveyance” which is automation to move parts in the factory line. It’s unclear if when this will be complete.
Update: On Feb 9 after market close, Tesla released a Form 8-k (Tesla claims automated lines from Germany not required to reach 2,500 week Model 3 production goal in Q1 2018)
4. Elon re-affirmed that the long-term competitive advantage of Tesla will be their factories and not their cars. This is a key point to understand about Tesla. By massively improving manufacturing efficiencies via engineering, AI, 3d printing, and robots, Tesla will be able to drive down costs faster than any other auto manufacturer, thus giving it a long-term sustained competitive advantage.
5. Elon mentioned they might be able to sell 1 million Model Y cars/year, and they can do it at half the capital expenditure cost than what they spent per car for the Model X.
6. Jon McNeil, VP of sales and service, has left the company and has joined Lyft as their COO.
Overall, Tesla’s Q4 earnings showed that systems are all go for Tesla to continue their path of ruthless innovation and ridiculous ambition.