TSLA Stock: This Is What the Earnings Mean for Tesla Motors Inc

TSLA StockWill Tesla Reach Its Goals for 2016?

In recent quarters, guidance, delivery, and production numbers seem to be running the show for Tesla Motors Inc (NASDAQ:TSLA) stock. So this time, let’s first take a look at something that is less talked about, but still of high importance—financials.

In the first quarter of 2016, Tesla generated $1.6 billion in non-GAAP revenue, an increase of more than 45% year-over-year. The bottom line also improved, with the company’s adjusted net loss shrinking 34% sequentially to $75.0 million, or a loss of $0.58 per share. (Source: “Tesla First Quarter 2016 Update,” Tesla Motors Inc Investor Relations, May 4, 2016.)

The highlight was what Tesla managed to do with its spending. The company reduced its non-GAAP operating expenses sequentially for the first time in three years. In the first quarter, total operating expenses came in at $417 million, down three percent from the fourth quarter of 2015. Moreover, it also reduced capital expenditures by 47% sequentially to $217 million.

The best part is that the company has plenty of cash on hand. By the end of March, Tesla’s cash and cash equivalents have increased to $1.44 billion. And because proceeds from “Model 3” reservations are recorded as receivables, the company’s impressive cash balance does not include cash flow from Model 3 reservations.

To see how much money the Model 3 has already brought to Tesla, here’s a number: 400,000. That’s the amount of preorders the Model 3 received by mid-April. With a $1,000 deposit on each preorder, those reservations could mean $400 million in zero-cost capital for the company. (Source: “Tesla’s Model 3 Reservations Rise to Almost 400,000,” Fortune, April 15, 2016.)

Speaking of the Model 3, let’s turn to the long-awaited numbers of production, delivery, and guidance. And on that front, there is good news.

Remember when Tesla first said that it’s going to produce 500,000 cars by 2020? That sounded like a pretty big target. The impressive thing is that Tesla is advancing its 500,000 build plan by two years to 2018.

The reason behind advancing its build plan is the strong demand for the Model 3. This would mean Tesla has to expand its production capacity by at least five-fold in the next two years. And the company will likely need additional capital to achieve that goal. On the cheerful side, construction of the “Gigafactory” turns out to be ahead of its original plan, with production of the first cells starting in the fourth quarter of 2016.

In the first quarter, Tesla delivered a total of 14,810 vehicles, which is similar to the company’s earlier estimate in April. Pricing has improved as well, with the “Model S” average price increasing 1.4% sequentially. Prices of the new “Model X” SUV turned out to be 30% higher than the Model S.

Tesla’s production increased 10% sequentially to a new quarterly record of 15,510 vehicles. For the current quarter, production is expected to increase another 30% to 20,000 vehicles.

Note that issues in the supply chain have now been resolved, and by the end of the second quarter, Tesla expects its production rate to reach 2,000 vehicles per week. This would help it achieve the goal of delivering 80,000 to 90,000 new cars in 2016.

The Bottom Line on TSLA Stock

Of course, having such an ambitious plan will be costly. Tesla said that this year’s capital expenditure is expected to be 50% higher compared to its previous guidance of $1.5 billion. With that in mind, Tesla’s goal of being net cash flow positive in 2016 might need some revision as well.

Tesla stock went up in after-hours trading as the company reported earnings. On the next morning, however, the stock is down more than four percent. Although the company’s outlook is undoubtedly bright, the path for TSLA stock might not be smooth sailing in the short term.