Last week, in an article, I mentioned that there were seven things to look for in Tesla's (TSLA) earnings and the company has finally announced its earnings. In this article, I will discuss the extent to which these questions were answered in a satisfactory manner.
Guidance for 2014: The company expects to deliver 35,000 vehicles in 2014, which easily beat my estimate of 32,000 vehicles and this translates into a growth rate of 55% over what the company has accomplished in 2013. While most estimates ranged between 30,000 and 40,000 vehicles, a lot of people including myself were looking towards the lower end of the range. Tesla's delivery guidance for 2014 was a nice surprise for the ("long") investors of the company. Tesla will be increasing weekly production from 600 cars to 1,000 cars between now and the end of the year, which should prepare the company for a production of at least 50,000 in 2015.
Deposits: Even though Tesla delivered 6,900 vehicles during the quarter, the company's total deposits rose from $140 million to $163 million. This shows that the demand for the Model S and Model X is still very healthy. Some may say that the increase is mostly due to the fact that Model X deliveries have not started; however, Model S vehicles are still ordered to be built and the demand for these cars must be pretty strong. Besides, Tesla wouldn't be increasing its production rate in such a big way if it didn't see a lot of demand for its cars. Since the company delivered 6,900 vehicles during the quarter and it collects $2,500 in deposits from each Model S reservation, this would reduce the amount by $17.25 million, which tells us that the new deposits during the quarter must have amounted somewhere around $40 million.
Float/Dilution: I was worried about Tesla's float and dilution because the company had about 25 million stock options outstanding at the end of last quarter and this would add about 20% to the existing float if all the options and warrants were exercised. During the fourth quarter of 2013, Tesla's diluted share count didn't increase much as it rose slightly from 121.86 million to 122.80 million. The increase mostly came from stock based employee incentives and this is very typical for growth companies. In fact, I was expecting Tesla's diluted share count to rise by about 2 to 3 million and the company definitely beat my estimate in this regard.
Cash position: Even though Tesla invested a lot of cash towards increasing its network of superchargers, introducing stores in Asia and increasing its production capacity, the company's total cash rose from $795 million to $846 million during the quarter. Elon Musk's company is doing an impressive job of managing cash and using its resources conservatively. I will admit that I was one of the skeptics that said that Tesla would probably require multiple rounds of external funding in order to fund its operations and growth, but the company has proven me (and many skeptics) wrong so far by managing its cash very conservatively and successfully.
Cash flow from operating activities: This is actually one of the most important metrics that the investors needed to be watching in this quarter's earnings. Tesla generated $129.76 million of cash flow from its operations for the quarter and it generated $258 million of cash flow from operations for the full-year. Now Tesla actually makes money from each car it sells as opposed to last year when it lost money from each car it sold. Elon Musk's team did an impressive job in proving me wrong.
Operating expenses: In the shareholder letter for the third quarter of 2013, Tesla acknowledged that its operating expenses would rise sharply in the fourth quarter as the company's R&D and administrative expenses would increase in double-digits from quarter-to-quarter: "R&D expenses are expected to increase sequentially by about 25% in Q4 as we accelerate product development efforts on Model X and Model S enhancements. SG&A expenses are expected to rise sequentially by about 20%, driven by the growth in our retail locations, service centers and Supercharger facilities." As a result, the company's R&D expenses rose in the low 20s and its SG&A expenses rose in the low 30s compared to the previous quarter but this is not a big deal because Tesla's revenues kept up with this rise with an increase of 42% quarter-to-quarter.
Updates on the Giga-Factory: In the company's letter to shareholders, there was a mention of Giga-Factory saying that the company will be ready to share some details very soon. The note read: "Very shortly, we will be ready to share more information about the Tesla Giga-Factory. This will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation. Working in partnership with our suppliers, we plan to integrate precursor material, cell, module and pack production into one facility. With this facility, we feel highly confident of being able to create a compelling and affordable electric car in approximately three years. This will also allow us to address the solar power industry's need for a massive volume of stationary battery packs." Basically, Tesla will create the Giga-Factory with a partnership, cut its battery costs significantly and move towards making an affordable vehicle (the Model E or The Third Gen). I simply can't wait to hear the details on the company's Giga-Factory and I am hoping that the company will find an affordable way to fund this factory.
Conclusion: In conclusion, Tesla proved me wrong in many ways and I am glad it did so. Earlier, I mentioned that I was long both calls and puts of Tesla and while my puts lost a lot of value, my calls appreciated more than enough to offset that loss. I am sure a lot of people will be joining the bandwagon of Tesla soon and my only objection for the company remains to be its fundamental valuation; however, if the company keeps growing at this rate, soon it will be able to reach a size that justifies its current valuation and some more.
Disclosure: I'm long TSLA calls and puts. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.