Tesla affirming 80-90K deliveries this year; advancing 500K unit build plan by 2 years to 2018; capex to be up 50% this year
05 May 2016
In its Q1 2016 letter to shareholders, Tesla affirmed its plan to deliver 80,000 to 90,000 vehicles in 2016. Given the tsunami of reservations for the Model 3 (more than 325,000 according to the letter), Tesla also said it is advancing its 500,000 total unit build plan (combined for Model S, Model X, and Model 3) to 2018—two years earlier than previously planned.
The company noted that increasing production 5x over the next two years would be “challenging and will likely require some additional capital.” Given the plans to advance the total unit build plan, Tesla said it expects capital expenditures will be about 50% higher than the previous guidance of $1.5 billion for 2016. “Naturally, this will impact our ability to be net cash flow positive for the year.”
Tesla also said it remained on plan to make the first Li-ion cells at the Gigafactory in Q4 2016. The company is adjusting its Gigafactory plans there to accommodate the more aggressive build plan.
Q1 Model S net orders were up 45% year-on-year. The more rapid pace of growth was driven by increased order growth in North America and Europe, as well as a more than 160% increase in orders from Asia.
Q1 saw a new quarterly production record of 15,510 vehicles, up 10% from Q4. Q1 Model S production of 12,851 vehicles met plan, but Model X production of 2,659 vehicles was insufficient to meet the projected level of deliveries. Tesla said it plans to continue increasing total vehicle production to support over 50,000 deliveries in the second half of this year.
Tesla will open more than 70 additional retail and service locations in 2016, bringing the total to nearly 300 locations. The company brought online 29 new Supercharger locations and 311 Destination charging locations during Q1. Global Supercharger and Destination connectors now total over 3,600 and 3,700, respectively.
Q1 financials. Total Q1 non-GAAP revenue was $1.60 billion for the quarter, up over 45% from a year ago, while GAAP revenue was $1.15 billion. GAAP net loss was $282 million, compared to the net loss of $151 million in Q1 2015. Total Q1 gross margin was 21.7% on a non-GAAP basis and 22.0% on a GAAP basis.
Automotive revenue was $1.48 billion on a non-GAAP basis, and comprises $1.03 billion of GAAP Automotive revenue plus $455 million of net increase in deferred revenue resulting from lease accounting used for indirect leases and cars sold with a resale value guarantee.
During the quarter, Tesla delivered 14,810 vehicles. Model S average prices improved 1.4% sequentially, as price increases and higher option take rates offset a slight mix shift to less expensive Model S variants. Average Q1 Model X prices were about 30% higher than for Model S.
After excluding $57 million of ZEV credit revenue, Q1 Automotive gross margin was 20.0% on a non-GAAP basis and 19.6% on a GAAP basis. Overall, the non-GAAP Automotive gross margin declined 90 basis points over Q4 due to an increase in delivery mix of Model X, which carries a lower margin during its ongoing production ramp phase.
Tesla will most definitely need to make multiple equity sales within 2018 to finance such a rapid expansion. The accelerated expansion is the right thing to do with all these orders for Model 3. You can’t have people wait forever for that car. Had Tesla not made a strategic decision to internalize battery pack and cell production as well as cell component production such a rapid expansion would have been impossible. I expect Tesla to make a 2 billion USD equity offer this year and another 2 billion USD for 2017 and another 2 billion USD for 2018. They need that money now that they have two years less to make money from gross earnings selling Model S and Model X. A rough guess from me is that Tesla needs about 10 billion USD to invest in that Giga factory and for new production lines at the Fremont factory.
Also interesting to see that Tesla has delivered powerpacks to customers produced at the Giga fab “Tesla Energy posted strong growth in the quarter as well. During Q1, we delivered over 25 MWh of energy storage to customers in four continents. We delivered over 2,500 Powerwalls and nearly 100 Powerpacks in the quarter throughout North America, Asia, Europe and Africa.” Quoted from shareholder letter. I expect that amount to increase exponentially in the coming quarters. 25Mwh is 25,000 kwh or assuming a pack price of 500 USD per kwh 12.5 million USD. Going to be interesting to follow that segment growth as well.
I hope that Tesla will add a towing option for Model S soon. They need that for making it a perfect car apart from a fully self-driving autopilot. I believe almost 25% of all cars have a towing hook so it is really something that is important for a lot of people. I also applaud Tesla for adding the HEPA air pollution defense system for Model S. Everybody needs that. I my opinion the legislation should require all new cars sold to have HEPA grade air filters because of all the cancer and asthma that road air pollution are causing among car drivers.
Posted by: Account Deleted | 05 May 2016 at 02:51 AM
I must say this new roadmap scares me. It sounds as if this could be a bridge too far.
Don’t get me wrong. It would be fantastic if Tesla could pull this off.
But the two top managers responsible for production leaving a few hours before this announcement? And it was not about the ramp up of the Model X production?
Look at the roadmap:
2015 = 50,580 cars
2015Q4 > 17,000 cars
2016Q1 < 15,000 cars (oops)
2016 > 80,000 cars (fingers crossed)
2016Q4 start cell and battery production in Gigafactory
2016.12.31 Tooling Model 3 completed in Fremont
2017.06.30 deadline for internal and external parts suppliers Model 3.
2017.07.01 start ramp up production Model 3
2017Q4 > 100,000 model 3 delivered => monthly production volume up to 500k/year!!
2018Q1 Gigafactory producing more Li-ion storage than rest of the world combined.
At the presentation of the model 3 the expectation was that Tesla planned to use 4 years to reach the 500,000 mark. And industry insiders thought this ludicrous.
Now it is compressed to 18 month.
Posted by: MaartenV | 05 May 2016 at 06:56 AM
The NUMMI facility has a capacity on the order of 300k vehicles per year, so that much isn't an issue for Tesla. Getting deliveries of parts, maybe.
One thing I don't see being a problem is scaling up. Once something has been smoothed out on one shift per day, going to 2 and 3 shifts per day is a lot less challenging.
Posted by: Engineer-Poet | 05 May 2016 at 08:45 AM
Believe it when you see it. Raising expectations so aggressively seems totally unnecessary. Why not under-promise and over-deliver? And if they somehow come close to meeting these production goals, is it likely their build quality problems decline as production expands exponentially? This whole thing defies common sense.
Posted by: Nick Lyons | 05 May 2016 at 10:03 AM
Trying to grow too fast is a sure way to go bankrupt. I am an engineer and minority owner of a 5 year old startup that builds a specialized high tech ag machine that is best described as part tractor and part electric robot. 18,000 lbs of steel that we mostly cut, bend and weld in-house. 3 years ago, we delivered 8 machines, last year 22 machines, and this year we are hoping to delivery about 50. It hurt a bit to lose sales because we could not build production fast enough but it is better than growing so fast that you fail. It is hard to add and train quality people fast enough and then you must find vendors that can supply parts on schedule, etc. I have always advocated a more careful ramp-up of production.
I have a lot of respect for Elon Musk and Tesla and it is great that they have that much interest but there are limits to how fast you can grow no matter how much money you have. Every new person you hire needs some training which takes time away form the existing personnel. Even adding machines takes time for debugging, etc.
Posted by: sd | 05 May 2016 at 02:20 PM
Preproduction to mass production never goes without some sort of hitch. And I've dealt with a few. I've seen stuff starting up be only 60% successful for months and that was because of a design oversight that couldn't be changed after release.
Hopefully they don't have anything worthy of a recall, or supplier shortage.
Like most have said, it'd be better to under promise and over deliver.
It's not hard to make 500k cars of a particular model a year but you have to have the infrastructure to do so. Tesla is still trying to aquire that, I think they need to slow down and get there in an appropriate time.
If volume of this nature was easily attainable for tesla, I think the waiting list for the existing cars would be much shorter.
Posted by: CheeseEater88 | 05 May 2016 at 05:38 PM
Musk said in Tesla’s earnings call conference that about 6500 unique parts go into making the Model 3 and that external supplies has been told to be ready for production start by July 1, 2017 or there will be consequences. He also said that it is impossible to start production on July 1, 2017 because a few suppliers will for one reason or another simply not be ready and even one missing part means production cannot start. So production will be delayed by some months and it is unavoidable in our imperfect world where people die unexpectedly, fires happen, human laziness and incompetence, etc.
It is more risky to push that hard for production ramp up but the benefits are also enormous. Risk can be managed by ensuring that Tesla has enough capital to endure a delay of production ramp up that will happen to some extent. The benefit is that Tesla will get to mass production faster for what now appears to be become one of the world’s best selling cars. Also Tesla will be first to hire all the high-voltage engineers that are going to be in short supply globally in a few years. Tesla will pretty much buy all available and planned production capacity for battery machine and materials fabrication on a global scale. It will be harder for others to follow Tesla because Tesla has already hired the best people and the available global production capacity in key areas. Also Tesla can make better deals faster with suppliers because their orders are so large. The price always drops the more you order although I admit that the price will go up if you need super fast delivery as Tesla want.
Musk also said that he believed the Model S and Model X was proof that Tesla knows how to make great cars. They designed them to be just that. However, Model 3 is designed first and foremost to be easy to mass produce at low cost. It is a great car but most of the engineering effort will be about designing its 6500 parts in a way that is suited for mass production and low cost.
Musk also revealed that they had enough buildings and land at Fremont and Nevada to build 1 million cars at these locations and he even speculated that Tesla could reach that production level in 2020. For logistic reasons, however, Musk expect Tesla to make factories in both Europe and Asia as it cost too much to transport 4000 pound cars selling at 35k USD around the planet.
Posted by: Account Deleted | 06 May 2016 at 12:14 AM
With enough $$B, TESLA could build factories (batteries and cars) in Asia and EU for the local markets?
Joint ventures may be an acceptable way to do it?
Posted by: HarveyD | 09 May 2016 at 08:16 AM