Tesla Motors, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2011. Financial statements are unaudited. Tesla designed, developed, manufactured and sold electric vehicles and electric-vehicle powertrain components, with the Roadster in production and the Model S under development.
Business Context and Key Metrics
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Total revenue | $57.7 million | $31.2 million | $164.9 million | $80.5 million |
| Automotive sales | $43.2 million | $23.4 million | $115.9 million | $67.9 million |
| Development services revenue | $14.4 million | $7.9 million | $49.0 million | $12.6 million |
| Gross profit | $17.2 million | $9.3 million | $53.8 million | $19.4 million |
| Gross margin | 29.9% | 29.8% | 32.6% | 24.1% |
| Operating loss | $64.5 million | $37.8 million | $170.6 million | $95.2 million |
| Net loss | $65.1 million | $34.9 million | $172.9 million | $103.0 million |
| Net loss per share | $0.63 | $0.38 | $1.75 | $2.86 |
Q3 revenue increased 85% year over year, while nine-month revenue increased 105%. Automotive sales benefited from higher Roadster sales and increased powertrain shipments, particularly to Daimler. Development services revenue primarily reflected Toyota RAV4 EV milestones.
Operating expenses were $81.7 million in Q3 and $224.3 million for the nine-month period, including research and development expense of $54.1 million and $147.8 million, respectively. Selling, general and administrative expense was $27.6 million in Q3 and $76.5 million for nine months.
Cash Flow, Liquidity and Capital Structure
- Cash and cash equivalents were $213.3 million at September 30, 2011, compared with $99.6 million at December 31, 2010.
- Short-term marketable securities totaled $65.1 million; restricted cash totaled $61.1 million, including $55.3 million in a dedicated Department of Energy account.
- Management identified approximately $573.7 million of principal liquidity sources, including cash, marketable securities, dedicated DOE cash and $240.0 million of remaining DOE loan availability.
- Net cash used in operating activities was $87.3 million for the first nine months of 2011, compared with $93.5 million in the prior-year period.
- Net cash used in investing activities was $191.2 million, including $143.6 million of property and equipment purchases and $65.0 million of marketable securities purchases.
- Net cash provided by financing activities was $392.2 million, including $231.5 million from the June 2011 public offering and private placements and $153.2 million from DOE loan drawdowns.
- Long-term debt was $225.0 million at September 30, 2011, compared with $71.8 million at year-end 2010. Capital lease obligations totaled approximately $1.0 million.
- The DOE facility provides for aggregate borrowings of up to approximately $465.0 million. Tesla had drawn $225.0 million by September 30, 2011, with $240.0 million remaining available, subject to conditions and covenants.
- Total assets increased to $700.3 million from $386.1 million at December 31, 2010, largely due to cash raised, capital investment and construction in progress.
Material Changes Versus the Prior Comparable Period
- Revenue growth was offset by substantially higher investment in Model S development, manufacturing infrastructure, staffing and retail expansion.
- Research and development expense increased 103% for the nine-month period, driven by Model S engineering, prototypes, supplier work, headcount and stock-based compensation.
- Gross margin improved for the nine-month period, primarily because of higher-margin development services and Roadster cost improvements, while quarterly gross margin was broadly stable.
- Property, plant and equipment increased to $248.1 million from $114.6 million, with construction in progress primarily related to the Model S manufacturing facility and equipment.
- Common stock outstanding increased to approximately 104.2 million shares from 94.9 million at December 31, 2010, reflecting public and private offerings and other issuances.
- Reservation payments increased to $65.2 million from $30.8 million, including $62.1 million for undelivered Model S sedans. Model S reservations remained refundable until customers entered purchase agreements.
Outlook, Management Commentary and Risks
- Management stated that the Model S program remained on track for first customer deliveries no later than July 2012. Model X was planned for a limited prototype showing by year-end 2011, public reveal in early 2012 and commercial introduction in the fourth quarter of 2013.
- Management expected fourth-quarter 2011 research and development expense to increase moderately and projected 2011 capital expenditures of approximately $220 million to $245 million.
- Roadster production was expected to end at 2,500 vehicles, with Lotus glider production continuing through January 2012. Tesla expected automotive sales to decline, potentially significantly, before the Model S launch as Roadster inventory and Daimler powertrain sales decreased.
- Tesla expected Toyota RAV4 EV development services revenue to be completed by early 2012. The Toyota supply agreement contemplated approximately $100 million of payments from 2012 through 2014, subject to delivery and performance requirements.
- The company expected to remain unprofitable until significant Model S volume sales, and warned that losses could increase before the Model S launch.
- Key execution risks included Model S design completion, manufacturing ramp-up, supplier readiness, safety and regulatory approvals, cost overruns, DOE loan draw conditions and the availability of additional financing.
- The Fremont facility had environmental liabilities estimated at $5.3 million. Total remediation exposure could be higher, and Tesla could ultimately bear responsibility after specified contractual limits and periods.
- Tesla relied on single- or limited-source suppliers, including battery-cell suppliers and Lotus for certain Roadster components. Supply disruptions, cost increases or quality problems could delay production and reduce margins.
- Additional risks included refundable Model S reservation cancellations, regulatory restrictions on direct sales and reservations, product liability and warranty claims, battery safety, intellectual-property claims, foreign-exchange exposure and competition from established automakers.
- On October 5, 2011, Tesla entered a long-term lithium-ion battery-cell supply agreement with Panasonic. On November 10, 2011, Tesla received an additional $20.4 million DOE loan drawdown.
Important Facts for Investors to Verify
- Whether Model S production, regulatory approvals and first deliveries occurred on the stated schedule and within the projected capital budget.
- Actual utilization and remaining availability of the DOE loan facility, including compliance with draw conditions, covenants and collateral requirements.
- Liquidity runway after ongoing operating losses, capital expenditures and potential Model S launch delays.
- Conversion rate of approximately 6,500 Model S reservations into binding purchase agreements and delivered vehicles, including cancellation trends.
- Revenue and margin effects from the end of Roadster production, completion of Toyota development milestones and the transition to Toyota RAV4 EV powertrain shipments.
- Supplier concentration, battery-cell availability, manufacturing yields, warranty costs and any recalls or product-liability claims.
- Potential costs and timing of environmental remediation at the Fremont facility beyond the $5.3 million accrued liability.
- Any subsequent equity or debt financing that could dilute existing stockholders or increase leverage.