Tesla Motors, Inc. (TSLA) reported adjusted loss (excluding one-time items other than stock-based compensation expense) of 48 cents per share in the fourth quarter of 2014, deteriorating from adjusted profit of 13 cents in the year-ago quarter. The loss compared unfavorably with the Zacks Consensus Estimate of a profit of 15 cents. The loss was due to delivery shortfall, manufacturing inefficiencies due to the launch of P85D and Autopilot functionality, along with adverse impact of the strong dollar.
The company’s fourth-quarter 2014 adjusted results excluded the impact of non-cash interest expenses related to convertible notes of 17 cents per share and deferred gross profit of 21 cents for Tesla’s Model S cars due to lease accounting. On the other hand, fourth-quarter 2013 adjusted results had excluded the impact of non-cash interest expenses related to convertible notes of 3 cents per share and deferred gross profit of 22 cents for its Model S cars due to lease accounting. Including these items, the company reported net loss of 86 cents per share, compared with net loss of 12 cents per share in the fourth quarter of 2013.
Excluding the impact of the deferment of Model S revenues due to lease accounting, top line jumped 43.9% to $1.1 billion in the reported quarter from $761.3 million a year ago. However, revenues missed the Zacks Consensus Estimate of $1.3 billion.
Tesla delivered 9,834 cars in the fourth quarter of 2014. It produced 11,627 vehicles in the quarter, thus achieving the production target of 35,000 Model S vehicles in 2014. Tesla delayed the launch of the Performance All-Wheel Drive Dual Motor car (P85D) in order to ensure the best quality for customers. This has resulted in shortfall in delivery in the fourth quarter.
Revenues (on a reported basis) from Automotive sales jumped to $956.7 million in the quarter from $610.9 million a year ago. Apart from higher vehicle deliveries, Automotive sales also benefited from $42 million of powertrain sales to Daimler AG (DDAIF) and $86 million of regulatory credits, including Zero Emission Vehicle (“ZEV”) credits.
Tesla did not generate any revenues from Development services (producing electric vehicle powertrain components and systems for other automobile manufacturers) during the quarter. In the fourth quarter of 2013, reported revenues from this business were $4.4 million.
Tesla’s fourth-quarter adjusted gross margin was 26.7%. Fourth-quarter automotive gross margin (excluding ZEV credits) was 22.0%. Quarterly gross margin was under pressure due to lower-than-expected average selling price.
2014 Results
Tesla recorded adjusted loss of 96 cents per share in 2014, wider than the Zacks Consensus Estimate of a loss of 34 cents. In comparison, the company had generated profit of 15 cents per share in 2013. Net loss (on a reported basis) increased to $2.07 per share from 55 cents per share in 2013.
Revenues, excluding the impact of Model S revenues deferred due to lease accounting, surged 45.2% to $3.6 billion from $2.5 billion in 2013, but missed the Zacks Consensus Estimate of $3.8 billion.
Financial Position
Tesla had cash and cash equivalents of $1.9 billion as of Dec 31, 2014, compared with $845.9 million as of Dec 31, 2013. Long-term debt was $2.4 billion as of Dec 31, 2014, versus $586.3 million as of Dec 31, 2013.
Cash outflow from operating activities amounted to $57.3 million in 2014, compared with cash flow of $264.8 million in the year-ago period. Capital expenditures increased to $969.9 million from $264.2 million in 2013.
Gigafactory Update
Tesla is constructing the Gigafactory as per plan near Reno, Nevada. The company started the steel fabrication of the structure nearly two months ago. Tesla plans to install equipment in the plant later this year. The automaker, together with Panasonic Corporation (PCRFY), will start the production of battery packs in the Gigafactory in 2016.
Model X Update
Tesla will start shipping the Model X in the third quarter of 2015. The automaker started the year with more than 10,000 orders for the Model S and almost 20,000 reservations for the Model X.
Outlook
Tesla expects to achieve a significant level of profitability in 2015 compared with the prior year. Production volume for the first quarter of 2015 is expected to be around 10,000 vehicles, compared with 11,627 vehicles produced in fourth quarter of 2014. Investments in manufacturing facilities will help the automaker to increase vehicle production to 2,000 units per week by 2015-end.
The automaker expects to deliver about 55,000 Model S and X vehicles globally in 2015, up 70% over 2014. The company expects 40% of these deliveries in the first half of 2015. Tesla plans to deliver 9,500 vehicles in the first quarter of 2015, up 47% over the first quarter of 2014.
Adjusted automotive gross margin is expected to be about 26% by the end of first-quarter 2015. The company believes that gross margin will benefit from its efforts to increase manufacturing efficiency and deliver a richer mix of products. The automaker plans to enhance profitability from the Model S and expects to achieve 30% gross margin on the car, fourth-quarter 2015 onward.
In 2015, operating expense are expected to increase 45%–50% compared with 2014. Selling, general and administrative expenses will be modest as the automaker will be focusing on enhancing operational efficiency. 2015 capital expenses are expected to be around $1.5 billion as Tesla is investing heavily in increasing production capacity, the development of the Model X, the Gigafactory construction and expansion of stores and services centers. Tesla also plans to expand its supercharger network by over 50% this year. The automaker will also focus on the development of other products like Model 3.
Currently, Tesla carries a Zacks Rank #3 (Hold). Superior Industries International, Inc. (SUP), sporting a Zacks Rank #1 (Strong Buy), is worth considering in the auto industry
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