Tesla Motors, Inc. 2012 Q3 Form 10-Q Summary
Business context and reporting period
Tesla designs, develops, manufactures and sells fully electric vehicles and electric powertrain components. This unaudited Form 10-Q covers the three and nine months ended September 30, 2012, with comparisons to the same periods in 2011. Model S deliveries began in June 2012, while Roadster production ended in January 2012. Tesla also supplied powertrain systems to Toyota for the RAV4 EV and continued limited strategic-partner activities with Daimler.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|---|---|---|---|
| Total revenue | $50.1 million | $57.7 million | $106.9 million | $164.9 million |
| Automotive sales | $50.0 million | $43.2 million | $91.3 million | $115.9 million |
| Development services | $0.1 million | $14.4 million | $15.6 million | $49.0 million |
| Gross profit (loss) | $(8.8) million | $17.2 million | $6.2 million | $53.8 million |
| Gross margin | Approximately (17.5%) | Approximately 29.9% | Approximately 5.8% | Approximately 32.6% |
| Loss from operations | $(108.5) million | $(64.5) million | $(303.4) million | $(170.6) million |
| Net loss | $(110.8) million | $(65.1) million | $(306.3) million | $(172.9) million |
| Net loss per share | $(1.05) | $(0.63) | $(2.91) | $(1.75) |
| Operating cash flow | Not separately provided | Not separately provided | $(206.0) million | $(87.3) million |
| Capital expenditures | $68.5 million | $68.8 million | $197.7 million | $143.6 million |
- September 30 cash and cash equivalents were $85.7 million; current restricted cash was $22.9 million, including $15.0 million reserved for DOE debt service.
- Total assets were $809.2 million, compared with $713.4 million at December 31, 2011. Inventory increased to $159.0 million from $50.1 million as Tesla prepared for Model S production.
- Total liabilities were $837.1 million, compared with $489.4 million at year-end 2011. Long-term debt, including the current portion, totaled approximately $465.0 million in principal under the DOE Loan Facility, and capital lease obligations totaled approximately $9.5 million.
- Stockholders’ equity was negative $27.9 million at September 30, 2012, versus positive $224.0 million at December 31, 2011.
- Reservation payments for undelivered vehicles were $138.3 million, up from $91.8 million at December 31, 2011. These payments were generally refundable and had not been recognized as revenue.
Material changes versus the prior comparable period
- Q3 total revenue decreased 13%, primarily because development-services revenue fell sharply after completion of major Toyota milestones. Automotive revenue increased 16%, driven by initial Model S deliveries and Toyota powertrain sales.
- Q3 gross profit declined to a loss because of Model S production-ramp inefficiencies, low factory-cost absorption, higher initial parts costs and manufacturing overhead. Management reported an automotive gross margin of negative 17%.
- Research and development expense increased 14% to $61.9 million in Q3; nine-month R&D expense increased 39% to $205.1 million. Selling, general and administrative expense increased 37% to $37.8 million in Q3.
- Nine-month operating cash use increased to $206.0 million from $87.3 million, principally reflecting the larger net loss and a $104.0 million investment in inventory and operating lease vehicles.
- Property, plant and equipment increased to $486.2 million from $298.4 million as Tesla invested in the Fremont factory, tooling and Model S manufacturing capacity.
- Tesla completed drawdowns under the $465.0 million DOE Loan Facility by August 31, 2012. Nine-month financing cash flow included $188.8 million of DOE borrowings, compared with $392.2 million of financing cash flow in the prior-year period, which included public and private equity offerings.
Guidance, outlook, commentary and risks
- Management expected Q4 2012 deliveries of approximately 2,500 to 3,000 Model S vehicles, compared with 263 cumulative Model S deliveries through September 30.
- Management expected positive free cash flow toward the end of Q4 2012, a 25% gross-margin target in 2013 and profitability in 2013. These expectations depended on production scale-up, cost reductions and delivery execution.
- Aggregate 2012 capital expenditures were projected at approximately $240 million, primarily for Model S and Model X development, manufacturing equipment, stores and service infrastructure.
- Management stated that the October 3, 2012 follow-on offering generated $222.1 million of net proceeds from 7,964,601 shares, including $1.0 million purchased by Elon Musk. The offering occurred after the balance-sheet date and was not included in September 30 financial statements.
- In October 2012, Tesla deposited $14.2 million into the DOE debt-service reserve for principal and interest due March 15, 2013. Management expected available liquidity, offering proceeds and projected operating cash flow to provide liquidity for at least the next 12 months based on current plans.
- Tesla identified potential future DOE covenant challenges, including the possibility of seeking amendments to the fixed-charge coverage covenant for periods in 2013 and to the liabilities-to-stockholders’-equity covenant beginning in 2014.
- Key risks included delays in Model S production and deliveries, dependence on single-source suppliers and battery-cell availability, warranty and product-liability exposure, customer reservation cancellations, regulatory limitations on direct sales, environmental obligations at the Fremont facility, competition, foreign-currency exposure and the need for additional capital.
- Tesla had accrued $5.3 million for Fremont environmental liabilities, but stated that total remediation costs could change materially. Warranty reserves were $6.2 million at September 30, 2012.
Investor verification points
- Verify whether Model S production and delivery targets were achieved and whether manufacturing efficiencies translated into positive gross margins.
- Reconcile the October 2012 equity offering proceeds and dilution with post-quarter liquidity and share counts.
- Assess the timing and sufficiency of DOE debt-service funding, covenant compliance and any required amendments or waivers.
- Monitor reservation cancellations and conversion of the $138.3 million reservation liability into delivered-vehicle revenue.
- Evaluate operating cash burn, inventory growth and capital-expenditure requirements against management’s projected path to positive free cash flow and profitability.
- Review supplier concentration, battery-cell availability, warranty claims, recalls and potential environmental or intellectual-property liabilities.