Tesla Motors Inc Earnings: 5 Things You Need to Know

Tesla Motors IncWill Tesla Motors Inc Prove the Bears Wrong?

Tesla Motors Inc (NASDAQ:TSLA) delivered another exciting quarterly report for shareholders, but not everyone is impressed.

In a letter to investors published Wednesday, CEO Elon Musk outlined a laundry list of exciting achievements the company pulled off in the latest quarter. Business is booming so much, in fact, that the company is stepping up its growth ambitions. But some investors aren’t impressed, calling the plan outrageous and too expensive. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc Investor Relations, May 4, 2016.)

Here’s what you need to know…

Musk Dramatically Underestimated the Demand for EV

Shout out to Zachary Shahan over at Clean Technica for uncovering this gem. In the company’s 2011 letter to shareholders, executives predicted “Model S” demand would peak at around 20,000 units per year. “Model X” demand was estimated to be 10,000–15,000 SUVs a year. (Source: “Tesla Drastically Underestimated Model S & X Demand (Financials Flashback),” Clean Technica, May 5, 2016.)

Those numbers now appear to be comically low. In 2016, management now expects to deliver 80,000 to 90,000 new Model S and Model X vehicles. Even the people most optimistic on all-electric vehicles couldn’t grasp the huge opportunity they were knocking on.

Model 3 Is the Biggest Consumer Product Launch Ever

Tesla received more than 325,000 reservations for the “Model 3” in the first week of taking deposits. This implies about $14.0 billion in booked sales, making it the biggest consumer product launch ever.

This number was achieved in spite of the fact that Tesla spent no money on advertising or paid endorsements. Anyone who believed all-electric vehicles could never achieve mass-market adoption is munching on some humble pie this morning. With the Model 3, Tesla’s mission of transitioning to a sustainable transportation system looks more achievable than ever.

Tesla Is Aiming for the Impossible

In response to outsized enthusiasm for the Model 3, the company is now ramping up production quotas. In the company’s letter to shareholders Wednesday, CEO Elon Musk moved up his already aggressive timeline for production of Tesla’s all-electric cars. Management is now aiming to produce 500,000 vehicles per year by 2018, two years earlier than the company had previously projected.

For context, Tesla produced just 50,000 vehicles in 2015. Even in 2016, the company expects to only deliver 80,000 to 90,000 cars and SUVs. How exactly Elon Musk will be able to increase production 10-fold within two years remains to be seen.

Investors Are Not Impressed

Despite the rosy outlook, shareholders are not impressed. Initially, TSLA stock spiked following the announcement. But by the beginning of trading on Thursday, shares of Tesla stock plunged more than four percent.

Why the change of heart? Investors are starting to realize they will have to foot the bill for Elon Musk’s aggressive expansion. According to Bloomberg, analysts originally expected Tesla to burn through $820 million of cash in 2016. But with the bumped production timetable, this cash burn figure is expected to grow to $1.6 billion. (Source: “Tesla’s Talk Isn’t Cheap,” Bloomberg, May 5, 2016.)

The Smart Money Is Betting Against Tesla

Other prominent investors are skeptical, too. Yesterday, billionaire Jim Chanos announced he was short Tesla stock. The renowned hedge fund manager told CNBC Wednesday that he was worried about the rash of executive departures and management’s inability to predict delivery numbers from one quarter to the next. (Source: “Jim Chanos betting against China,” CNBC, May 5, 2016.)

Will he be right? Tesla has answered the skeptics before and certainly has the momentum on its side. Much of this upside, however, may already be baked into the TSLA stock price.

And even if the company changes the world, how much of a profit will be left over for shareholders?