Tesla’s Q2 Earnings Badly Miss the Mark, but Outlook is Strong

teslaElectric car maker Tesla Motors Inc (NASDAQ:TSLA) late Wednesday posted disappointing second quarter earnings results, but noted the second half of the year should see significant production improvements.

The Palo Alto, CA-based company reported a second quarter adjusted net loss of $1.06 per share, badly missing analysts’ view for a smaller loss of $0.65. Revenue rose 30.5% from last year to $1.56 billion, but missed estimates for $1.65 billion.

Other notes from the earnings release included:

  • Model S orders increased year over year.
  • With the addition of Model X orders, total Q2 net new vehicle orders rose 67% from a year ago.
  • Delivered 14,402 new vehicles in Q2, including 9,764 Model S and 4,638 Model X.
  • Non-GAAP gross margin was 20.8% in the period.

From the press release:

Production and demand are on track to support deliveries of ~50,000 new Model S and Model X vehicles during the second half of 2016. Vehicle production efficiency is improving rapidly and we are now increasing our weekly production rate even further. Barring any further supply constraints, we plan to exit Q3 with a steady production rate of 2,200 vehicles per week, and plan to increase production to 2,400 vehicles per week in Q4. We anticipate that direct leasing will rise from 8% of deliveries in Q2 to about 15% of deliveries in Q3, as we have reached our funding limit with a banking partner. We anticipate adding new partners that will allow us to fund our planned growth in the future. We recognize revenue on directly leased deliveries as cash is received over the lease term of typically three years, on both a GAAP and non-GAAP basis. Model S and Model X cost reductions and improved vehicle manufacturing efficiency should offset the margin impact of the expected mix shift toward our 60 kWh configured vehicles and still drive additional gross margin increases throughout the year.

We expect GAAP and non-GAAP Automotive gross margins excluding ZEV credits to increase by 2-3 percentage points through Q3 and Q4 (previously called for 30% S and 25% X adj. gross margin). Total non-GAAP operating expenses should increase sequentially in Q3 and Q4, and we now expect full year 2016 total non-GAAP operating expenses to increase by about 30%. The increases come from engineering, design, and testing expenses related to Model 3 supplier contracts, and higher sales and service costs associated with expanding our geographic presence. Despite the disciplined pace of capital spending in the first half of this year, we still expect to invest about $2.25 billion in capital expenditures in 2016, in support of our accelerated production plan for Model 3.

Some Model 3 production equipment is already on line, including initial capacity in our stamping and paint centers. Later this year, we plan to begin construction of new Model 3 body and general assembly centers. Gigafactory construction remains on target to support volume production of Model 3 in late 2017, and we recently accelerated construction to reach a rate of 35 GWh/year of cell production in 2018.

Tesla Shares posted small losses in aftermarket trading Wednesday to $225.35. TSLA has fallen 5.92% year-to-date, compared with a 5.9% gain in the S&P 500 during the same period.

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