Tesla Motors, Inc. TSLA reported adjusted loss (excluding one-time items other than stock-based compensation expense) of 82 cents per share in the second quarter of 2015, much wider than the adjusted loss of 14 cents recorded in the year-ago quarter. However, the loss was narrower than the Zacks Consensus Estimate of a loss of $1.39.
The company’s second-quarter 2015 adjusted results exclude the impact of non-cash interest expenses related to convertible notes and other borrowings of 14 cents per share, and deferred gross profit of 49 cents for Tesla’s Model S cars due to lease accounting. On the other hand, Tesla’s second-quarter 2014 adjusted results had excluded the impact of non-cash interest expenses related to convertible notes and other borrowings of 17 cents per share and deferred gross profit of 13 cents for its Model S cars due to lease accounting. Including these items, the company reported net loss of $1.45 per share in the second quarter of 2015, compared with net loss of 44 cents per share in the second quarter of 2014.
Adjusted revenues improved a strong 40% to $1.2 billion in the reported quarter and steered past the Zacks Consensus Estimate of $1.16 billion. On a reported basis, revenues increased 24.1% to $955 million.
Tesla delivered 11,532 cars in the reported quarter, almost in line with the expectation of 11,507 deliveries. Meanwhile, Tesla manufactured 12,807 vehicles in the quarter, 46% higher year over year and also above the projected production of 12,500 vehicles.
Revenues (on a reported basis) from Automotive sales jumped to $878.1 million in the quarter from $727.8 million a year ago. Revenues benefited from improved vehicle deliveries, partially offset by a decrease in vehicle prices. Revenues on an adjusted basis were $1.12 billion in the reported quarter. In the second quarter of 2015, the electric automaker directly leased 631 cars worth $63 million. The company partnered with more banks thus reducing the percentage of vehicles directly leased by Tesla.
Revenues (on a reported basis) from the Services and other segment increased 85% to $77 million from $41.5 million in the year-ago quarter.
Tesla’s second-quarter 2015 adjusted gross margin was 23.4%. Also, the second-quarter automotive gross margin (excluding ZEV credits) was 23.9%. Quarterly gross margin was marred by higher manufacturing and part costs related to the ramp of the small drive unit line and the deferral of revenue recognition. Second-quarter Services and other segment’s gross margin were pegged at 2.2%. Gross margin benefited from efficient production and improved margins from services and merchandise sales.
Financial Position
Tesla had cash and cash equivalents of $1.15 billion as of Jun 30, 2015, compared with $1.91 billion as of Dec 31, 2014. Long-term debt totaled $2.6 billion as of Jun 30, 2015, versus $2.4 billion as of Dec 31, 2014.
Cash outflow from operating activities amounted to $291.3 million in the first half of 2015, compared with cash inflow of $57.1 million in the year-ago period. Capital expenditures increased to $831.2 million from $317.1 million in the first half of 2014.
Model X Update
Tesla will launch the Model X in Sep 2015.
Outlook
Tesla is optimistic about growth opportunities in 2015. Production volume for the third quarter of 2015 is expected to cross 12,000 vehicles, highlighting a 60% increase year over year. In the third quarter, the company expects to deliver same number of vehicles as in second quarter. Tesla also expects to directly lease the same number of vehicles as it has leased out in the second quarter. The company also plans to sell about $45 million of its regulatory credits in the third quarter, including about $30 million of ZEV credits.
However, revenues in the third quarter will be affected by a decline in average transaction price due to the strengthening of the dollar against other currencies and shifts in delivery mix. The company will focus on reducing the production costs in order to compensate for the low selling price. Thus, automotive gross margin (excluding ZEV credits) is expected to be lower than second quarter owing to low selling prices.
On Apr 30, 2015, the automaker launched a $250/kWh industrial Powerpack and a $350/kWh residential Powerwall. Tesla will start high volume production of these products by the third quarter of 2015 at its Fremont factory. With this, Services and other segment revenues will likely increase in the third quarter of 2015 and gross margin from the segment will be in line with the Q2 level. The company will also expand its Energy battery module and pack production at the Gigafactory in the first quarter of 2016.
For full-year 2015, Tesla expects to deliver about 50,000–55,000 Model S and Model X globally. The company is continuing with its final testing of Model X. As Model S and Model X are produced in the same assembly line, the challenges faced in producing Model X will hamper Model S’ production.
In the third quarter, operating expenses are expected to increase 5%–10% sequentially. For 2015, operating expenses are anticipated to rise 45%–50% compared with the 2014 level. The expense hike will likely arise from increased investments in product development, including Model 3 and sales capability expansion. The company expects capital expenditures of $1.5 billion in 2015 for the expansion of production capacity, Model X tooling purchase, the building of the Gigafactory and expansion of stores, service centers and the Supercharger network.
Currently, Tesla carries a Zacks Rank #2 (Buy). Other favorably-ranked automobile stocks include Ford Motor Co. F, O'Reilly Automotive Inc. ORLY and PACCAR Inc. PCAR. All the stocks also carry a Zacks Rank #2.
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