TSLA

Tesla, Inc. 10-Q Summary: Quarter Ended June 30, 2010

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2010, for Tesla Motors, Inc. (Tesla). At the time of filing, Tesla was a private company preparing for its Initial Public Offering (IPO), which closed on July 2, 2010. The company designs, develops, manufactures, and sells high-performance fully electric vehicles, primarily the Tesla Roadster, and electric vehicle powertrain components. Tesla is in the development phase of its second vehicle, the Model S sedan, with commercial introduction expected in 2012.

Key Financial Metrics

Note: All figures are in thousands unless otherwise noted. The filing does not provide a specific "Operating Cash Flow" line item for the three-month period, but reports Net Cash Used in Operating Activities for the six months ended June 30, 2010, as $(45.2) million.

Material Changes vs. Prior Period

• Revenue Composition: Automotive sales decreased to $24.0 million (Q2 2010) from $26.9 million (Q2 2009), primarily due to the fulfillment of pre-2009 reservations in the prior year. However, Tesla introduced "Development Services" revenue of $4.4 million in Q2 2010, a new revenue stream not present in the prior year.
• Operating Expenses: Total operating expenses surged to $37.6 million in Q2 2010 from $10.2 million in Q2 2009. This increase was driven by a significant rise in Research and Development (R&D) expenses ($15.4 million vs. $1.9 million) and Selling, General, and Administrative (SG&A) expenses ($22.2 million vs. $8.2 million). The R&D increase was partly due to the absence of $8.5 million in Daimler development compensation that offset R&D expenses in 2009.
• Stock-Based Compensation: Stock-based compensation expense increased significantly to $6.1 million in Q2 2010 from $0.2 million in Q2 2009. This includes a $2.4 million correction for an accounting error related to stock-based compensation in 2009.
• Debt Structure: Tesla entered into a $465 million loan facility with the U.S. Department of Energy (DOE) in January 2010. As of June 30, 2010, the company had drawn down $45.4 million, which is recorded as long-term debt.

Guidance, Outlook, and Risks

• Upcoming IPO: The filing notes that the IPO registration statement was declared effective on June 28, 2010, and the offering closed on July 2, 2010, raising approximately $188.8 million in net proceeds. Concurrently, Toyota purchased $50.0 million of common stock in a private placement.
• Model S Development: Management expects to introduce the Model S sedan commercially in 2012. The company entered into an agreement in May 2010 to purchase a manufacturing facility in Fremont, California, for approximately $42 million to produce the Model S.
• Liquidity: As of June 30, 2010, Tesla held $47.3 million in cash. Management stated that without the IPO proceeds, additional financing would be required to fund operations beyond the next 24 months. The filing explicitly states that the financial statements do not include adjustments for the outcome of uncertainty regarding future financing.
• Risks: Key risks include the company's limited operating history, dependence on the successful launch of the Model S, reliance on single-source suppliers (e.g., Lotus for Roadster gliders), and the potential for significant losses to continue until the Model S achieves volume production. There is also a risk regarding the ability to draw down the full amount of the DOE loan facility, which is subject to milestone conditions.

Investor Verification Checklist

• Post-IPO Capitalization: Verify the final share count and capital structure following the July 2, 2010, IPO and the automatic conversion of all convertible preferred stock to common stock.
• DOE Loan Milestones: Confirm Tesla's progress on the specific milestones required to draw down the remaining $419.6 million of the DOE loan facility, particularly regarding the Model S facility environmental assessments.
• Model S Timeline: Monitor the status of the Fremont facility purchase closing and the engineering progress of the Model S to assess the feasibility of the 2012 commercial launch target.
• Reservation Cancellations: Track the conversion rate of Model S reservations (approx. 2,600 as of June 30, 2010) into actual sales, noting that all reservations are fully refundable.
• Supplier Concentration: Review the status of the supply agreement with Lotus Cars Limited, which expires in December 2011, and the transition plan for Roadster production.