Tesla Motors, Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three months ended March 31, 2012. Tesla designs, develops, manufactures and sells fully electric vehicles and electric powertrain components. The filing covers the transition from the Roadster and OEM development programs toward the planned launch of the Model S sedan, with initial customer deliveries targeted for June 2012.
Financial performance and condition
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Total revenue | $30.2 million | $49.0 million | Down 39% |
| Automotive sales | $19.2 million | $33.6 million | Down 43% |
| Development services revenue | $10.9 million | $15.4 million | Down 29% |
| Gross profit | $10.2 million | $18.0 million | Down 43% |
| Gross margin | 33.8% | 36.8% | Down 3.0 percentage points |
| Operating loss | $88.8 million | $47.3 million | Loss increased 87% |
| Net loss | $89.9 million | $48.9 million | Loss increased 84% |
| Net loss per share | $0.86 | $0.51 | Loss increased |
| Cash used in operations | $50.1 million | $43.3 million | Use increased 16% |
| Capital expenditures | $68.0 million | $20.5 million | Significantly higher |
Operating expenses were $99.0 million, including $68.4 million of research and development and $30.6 million of selling, general and administrative expense. The resulting operating margin was approximately negative 294% and the net margin was approximately negative 298%.
At March 31, 2012, cash and cash equivalents were $218.6 million, short-term marketable securities were $25.0 million, and restricted cash totaled $43.0 million. The company reported total assets of $761.1 million, total liabilities of $607.2 million, and stockholders’ equity of $153.9 million. Reservation payments were $113.3 million, including $112.6 million related to undelivered Model S and Model X vehicles; these payments were generally refundable until a customer entered into a purchase agreement.
Long-term debt, including the current portion, totaled approximately $360.5 million, principally under the Department of Energy loan facility. Capital lease obligations totaled approximately $5.4 million. The company received $84.3 million of DOE loan proceeds during the quarter, leaving approximately $104.5 million available for future drawdowns at March 31, 2012.
Material changes versus the prior comparable period
- Revenue declined primarily because the Daimler Smart fortwo and A-Class EV production programs had ended and Roadster sales in North America were concluded. The Roadster production run ended in January 2012.
- Development services revenue decreased as Tesla completed the remaining Toyota RAV4 EV development milestones and sample deliveries.
- Research and development expense increased 66% to $68.4 million, reflecting Model S beta and release-candidate vehicles, testing, Tesla Factory activities, Model X development and higher personnel costs.
- Capital spending increased substantially to support Tesla Factory construction, tooling and manufacturing equipment for Model S.
- Cash used in investing activities increased to $79.4 million from cash provided of $10.1 million in the prior-year quarter, primarily because of higher capital expenditures and transfers into dedicated DOE accounts.
- Financing cash inflows increased to $92.8 million from $34.3 million, primarily due to larger DOE loan drawdowns.
- Accounts receivable became more concentrated: Toyota represented 66% and Daimler 24% of accounts receivable at March 31, 2012.
Guidance, outlook, commentary and risks
Management expected initial Model S deliveries in June 2012, with higher-volume production and a path to profitability targeted for 2013. Model X production was targeted for the fourth quarter of 2013, with significant deliveries expected in 2014. Management expected continued losses through at least the remainder of 2012 as Tesla funded vehicle development, manufacturing ramp-up, stores, service infrastructure and Model X activities.
Management stated that available liquidity of approximately $387.3 million, consisting of cash, marketable securities, dedicated DOE account cash and remaining DOE borrowing capacity, together with projected operating cash flows, was expected to fund operations until profitability in 2013 under current plans. The filing also noted that additional equity, debt or other financing could be required if launches were delayed, costs exceeded expectations or DOE funding became unavailable.
- Model S launch and production ramp risks included unfinished testing, certification, supplier readiness, manufacturing execution, cost overruns and possible delays in DOE loan drawdowns.
- Many components were single sourced, including battery cells, creating exposure to supplier failures, shortages, quality issues and price increases.
- Model S reservations were refundable until customers entered purchase agreements, creating cancellation and liquidity risk. Delays could lead to material refunds.
- The DOE facility was secured by substantially all company property and imposed financial, operational and project milestones, minimum cash requirements and other covenants. A default could prevent further draws and accelerate outstanding debt.
- Tesla faced substantial competition, uncertain consumer adoption of electric vehicles, battery safety and product liability risks, regulatory changes, foreign-exchange exposure and dependence on government incentives.
- The Fremont facility had pre-existing environmental conditions. Tesla accrued $5.3 million for environmental liabilities and could face additional remediation costs beyond contractual protections from NUMMI.
- Tesla reported no material changes in internal control over financial reporting, and management concluded disclosure controls were effective at a reasonable assurance level.
Subsequent to quarter-end, Tesla received an additional $8.1 million DOE loan in May 2012 at a 1.3% interest rate.
Most important facts for investors to verify
- Whether Model S customer deliveries began on the stated June 2012 schedule and whether production ramped without material cost overruns.
- Actual Model S reservation conversion and cancellation rates, including the liquidity impact of refundable reservations.
- Remaining DOE loan availability, compliance with all financial and project covenants, and the timing of further drawdowns.
- Cash burn, capital expenditures and funding needs relative to management’s 2013 profitability expectation.
- Gross margins and manufacturing costs as Model S replaced Roadster and development-services revenue.
- Production volumes and revenue under the Toyota RAV4 EV program and the new Daimler development program.
- Supplier concentration, battery-cell availability, warranty claims, recalls and product-liability exposure.
- Potential environmental remediation costs at the Fremont facility and the enforceability of NUMMI’s obligations.