Tesla Motors, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Tesla designs, develops, manufactures and sells fully electric vehicles and electric-vehicle powertrain components. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2011, with comparisons to the corresponding 2010 periods. Tesla was selling the Roadster, developing the Model S for planned mid-2012 deliveries, and planning to reveal a Model X prototype by year-end 2011.
Financial Performance and Position
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Total revenue | $58.2 million | $28.4 million | $107.2 million | $49.2 million |
| Automotive sales | $39.0 million | $24.0 million | $72.7 million | $44.6 million |
| Development services | $19.1 million | $4.4 million | $34.5 million | $4.7 million |
| Gross profit | $18.5 million | $6.3 million | $36.5 million | $10.1 million |
| Gross margin | 31.8% | 22.0% | 34.1% | 20.5% |
| Operating loss | $(58.7) million | $(31.4) million | $(106.1) million | $(57.4) million |
| Net loss | $(58.9) million | $(38.5) million | $(107.8) million | $(68.0) million |
| Basic and diluted loss per share | $(0.60) | $(5.04) | $(1.12) | $(9.10) |
Research and development expense increased to $52.5 million in Q2 2011 from $15.4 million, primarily for Model S engineering, prototypes, testing, manufacturing readiness and related personnel. SG&A increased to $24.7 million from $22.2 million. Six-month operating expenses were $142.6 million, compared with $67.5 million.
For the six months, operating cash flow was $(65.8) million, investing cash flow was $(13.0) million, and financing cash flow was $298.6 million. Capital expenditures were $74.8 million in the first half, including substantial Model S manufacturing investments. Cash and cash equivalents were $319.4 million at June 30, 2011, compared with $99.6 million at December 31, 2010.
Total assets were $646.2 million and total liabilities were $297.7 million at June 30, 2011. Long-term debt was $134.2 million, primarily under the Department of Energy loan facility. Tesla had $330.9 million remaining available under that facility and $11.3 million in restricted cash in the dedicated DOE account. Management reported total principal liquidity sources of approximately $661.5 million, including cash, restricted cash and remaining DOE availability.
Material Changes Versus Prior Comparable Period
- Revenue increased 105% year over year in Q2 and 118% for the first six months. Automotive revenue benefited from higher Roadster deliveries and increased Daimler battery-pack and charger shipments.
- Development-services revenue increased substantially because of Toyota RAV4 EV milestones and prototype deliveries. The comparable 2010 period primarily reflected the Daimler A-Class program.
- Gross margin improved, but higher operating expenses caused the operating loss to widen to $58.7 million in Q2 from $31.4 million.
- Research and development expense rose 241% in Q2 and 227% for the first six months, reflecting accelerated Model S development and manufacturing preparation.
- Cash increased primarily because of the June follow-on equity offering and concurrent private placements, which generated approximately $231.5 million, together with $62.3 million of DOE loan draws.
- Property, plant and equipment increased to $189.6 million from $114.6 million at year-end 2010, driven mainly by construction in progress for the Fremont Model S facility.
- Model S reservation payments increased to $49.5 million from $28.3 million at December 31, 2010. These payments remained liabilities and were refundable until customers entered purchase agreements.
Guidance, Outlook, Risks and Unusual Items
- Management expected Model S customer deliveries to begin in mid-2012 and Model X commercial introduction in the fourth quarter of 2013. Model X prototype disclosure was planned by the end of 2011.
- 2011 capital expenditures were projected at approximately $220 million to $245 million, primarily for Model S and Model X development and manufacturing activities. Research and development and SG&A were expected to increase during the remainder of 2011, and management expected continued net losses.
- Roadster production through Lotus was expected to continue until January 2012. Tesla anticipated declining vehicle revenue before Model S production, creating a transition-period risk.
- Development-services revenue from Toyota was expected to continue through early 2012, but Tesla had no significant development-services agreements identified after completion of the Toyota Phase 1 work. Daimler agreements did not extend beyond 2011.
- The DOE facility was subject to draw conditions, covenants and restrictions. Failure to meet milestones or covenants could delay funding, trigger default or accelerate repayment.
- Tesla remained dependent on external financing and stated that additional funding might be required if product launches were delayed, costs exceeded estimates, or DOE funds were unavailable. There was no assurance that financing would be available on acceptable terms.
- Key operating risks included unproven higher-volume manufacturing, supplier and battery-cell concentration, product quality and warranty exposure, regulatory approvals, direct-sales restrictions, refundable reservation cancellations, competition and electric-vehicle demand.
- Tesla accrued $5.3 million for environmental liabilities at the Fremont facility, but stated that total remediation costs could change materially because the site had known soil and groundwater conditions.
- A July 15, 2011 Toyota supply and services agreement contemplated approximately $100 million of payments from 2012 through 2014, contingent on delivery of powertrain systems meeting Toyota’s specifications.
Investor Verification Points
- Verify the sustainability and quality of revenue growth, particularly the concentration in Toyota development milestones and Daimler powertrain shipments.
- Reconcile the reported $661.5 million liquidity figure with unrestricted cash, restricted cash, DOE availability, draw conditions and required project funding.
- Track Model S manufacturing milestones, capital spending, supplier readiness, regulatory approvals and the timing of customer deliveries.
- Assess the potential revenue gap between the Roadster wind-down and Model S launch, including the effect of reservation cancellations.
- Monitor DOE covenant compliance and the availability of the remaining $330.9 million facility commitment.
- Evaluate Fremont environmental exposure, warranty reserves, product-liability risks and the ability to qualify alternate suppliers.
- Confirm the conversion of Model S reservations into nonrefundable purchase agreements, vehicle deliveries and recognized revenue.