Tesla Motors, Inc. — FY2012 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2012, including unaudited fourth-quarter results. Tesla designed, manufactured and sold fully electric vehicles and electric powertrain components. Model S customer deliveries began in June 2012, while the Roadster production run ended in January 2012. Tesla operated one reporting segment.
- Model S production exceeded 3,100 vehicles and deliveries were approximately 2,650 by year-end.
- Production reached an annualized rate of approximately 20,000 vehicles in December 2012.
- Net Model S reservations exceeded 15,000 at year-end, supported by $138.8 million of refundable reservation payments.
- Tesla operated 32 stores and galleries and 29 service locations at year-end.
Financial performance and liquidity
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Total revenue | $413.3 million | $204.2 million | Up 102% |
| Automotive sales | $385.7 million | $148.6 million | Up 160% |
| Development services revenue | $27.6 million | $55.7 million | Down 51% |
| Gross profit | $30.1 million | $61.6 million | Down 51% |
| Gross margin | 7.3% | 30.2% | Down 22.9 points |
| Operating loss | $394.3 million | $251.5 million | Loss increased |
| Net loss | $396.2 million | $254.4 million | Loss increased |
| Net loss per share | $3.69 | $2.53 | Loss per share increased |
| Cash used in operations | $266.1 million | $128.0 million | Use increased |
| Capital expenditures | $239.2 million | $184.2 million | Up 30% |
Fourth-quarter 2012 revenue was $306.3 million, compared with $39.4 million in the fourth quarter of 2011. Fourth-quarter gross profit was $23.9 million, compared with $7.8 million, implying an approximate gross margin of 7.8% versus 19.9%. Fourth-quarter net loss was $89.9 million, compared with $81.5 million in the prior-year quarter.
- Research and development expense increased to $274.0 million from $209.0 million.
- Selling, general and administrative expense increased to $150.4 million from $104.1 million.
- Regulatory credit revenue increased to $40.5 million from $2.7 million and had no associated cost of revenues.
- Inventory increased to $268.5 million from $50.1 million, primarily to support Model S production and powertrain sales.
- Cash and cash equivalents were $201.9 million; total restricted cash was $24.3 million. Management identified approximately $221.0 million of principal liquidity sources, including current restricted cash.
- Working capital was negative $14.3 million at year-end.
- Outstanding DOE loan principal was approximately $452.3 million, with $50.8 million classified as current debt. Capital lease obligations totaled approximately $14.3 million.
Material changes versus the prior comparable period
- Revenue shifted toward Model S vehicle sales following the June 2012 launch, while powertrain and development revenue declined as Toyota RAV4 EV development and Daimler programs progressed or concluded.
- Gross profit and margin declined substantially because of Model S launch costs, low fixed-cost absorption, manufacturing inefficiencies, higher logistics expenses and elevated initial component prices.
- Operating expenses expanded materially as Tesla increased engineering, manufacturing, sales, service and international infrastructure.
- Cash consumption accelerated because of the net loss, increased inventory, capital spending and expansion requirements.
- Tesla completed the $465.0 million DOE loan drawdown in August 2012, made its first quarterly principal payment of $12.7 million in December, and raised approximately $222.1 million net through an October equity offering.
- Management disclosed a material weakness in internal control over financial reporting involving the presentation of non-cash capital expenditures in the statement of cash flows. Prior interim cash-flow statements and 2011 cash-flow amounts were revised; reported cash balances, balance sheets and statements of operations were not affected.
Guidance, outlook, commentary and risks
- Management targeted approximately 20,000 Model S deliveries in 2013, with European deliveries planned for summer 2013 and Asian deliveries later in the year.
- Management expected first-quarter 2013 profitability and approximately breakeven operating cash flow.
- Management expected first-quarter 2013 gross margin to exceed fourth-quarter 2012 levels and to reach a 25% target in the second half of 2013.
- Management planned materially lower 2013 capital expenditures after completing most Tesla Factory and Model S tooling investments, while continuing spending on stores, service centers, cost-reduction equipment and Model X development.
- Model X production was planned for late 2014, with a targeted annual production rate of approximately 10,000 to 15,000 vehicles.
- Key risks included sustaining Model S production and quality, dependence on single-source suppliers and battery-cell availability, raw-material and foreign-currency exposure, customer reservation cancellations, competition from established automakers, regulatory restrictions on direct sales, product liability and warranty claims, and the need to achieve significant cost reductions.
- The DOE facility imposed financial and operating covenants, restrictions on additional debt and dividends, security over substantially all property, and potential acceleration upon default. A March 2013 amendment accelerated the maturity date to December 15, 2017 and added potential excess-cash-flow prepayments.
- Tesla had accrued $5.3 million for environmental liabilities at the Fremont facility and $13.0 million for warranty obligations at year-end.
Investor verification checklist
- Verify whether Model S production, deliveries, quality and unit economics support the 2013 delivery and gross-margin targets.
- Reconcile regulatory credit revenue and assess its effect on reported automotive revenue and gross margin.
- Review cash conversion, inventory growth, accounts payable growth and quarterly operating cash flow.
- Confirm DOE loan covenant compliance, repayment requirements, restricted cash and the effects of the March 2013 amendment.
- Assess the likelihood and timing of profitability given the $396.2 million annual loss, accumulated deficit of $1.07 billion and continuing expansion spending.
- Monitor reservation cancellations and the conversion of refundable reservations into nonrefundable orders and vehicle deliveries.
- Review remediation of the material weakness in internal control over financial reporting and the corrected cash-flow presentations.