Tesla Motors Inc.
They Just Keep Delivering,
with Credibility Improving
Tesla 1Q11 operating results were stronger than we
expected with Model S reservations and key
milestones on track. The key feature of the quarter
was strong revenue (14% higher than our forecast) and
gross margin (37% vs. our 31% estimate). Cash
consumption was also better than we expected, with
Tesla consuming $64mm vs. our expectations of
$83mm burn. However, this was mainly due to capex
that was around one-half our forecast and should
catch-up through the remainder of the year. Tesla
raised its full year revenue guidance by $10m (approx
6%). Model S reservations are running at a clip of 300
per month, more than double our expectations.
Key 1Q11 numbers:
• Revenues. $49mm vs. MSe $43mm and cons.
$43mm. A 14% beat. The revenue beat was split
between Roadster revenue and Powertrain, while
Development Services was in line. Roadster revenue
per unit was roughly 10% higher than we expected.
• Operating loss (US GAAP). Came to ($47mm) vs.
MSe ($54mm) driven by gross margin and lower
SG&A. Stock-based comp was slightly lower than we
expected, implying better cash earnings quality.
• EPS (US GAAP). ($0.51) vs. MSe ($0.57).
• Net Debt. Net debt came to $2mm vs. MSe $31mm,
driven by free cash flow of negative $64mm that was
stronger than expected vs. MSe $83mm cash burn.
Gross liquidity stood at $506mm vs. $566mm at the
start of the year and our end-of year forecast of
2011 Outlook: Tesla seems on track on all its milestone
fronts, with its 15 Model S alpha builds complete and a
beta build on track for completion by end-of-summer and
ready for journalists to drive. Likely direction of
consensus estimates: modestly positive. This is a
decent beat with good quality results and an optimistic
FY outlook that could trigger some relief for the stock.
Sourcing and partnerships are two distinctly different things. I worked with Daimler. I know the culture. When it comes to product, Daimler shares with no one. Why would Tesla be any different?
Daimler has a lot of industrial partners (BYD, Tesla, Evonik).
They even co-operate with BMW in sourcing.
Chrysler was a takeover that went terribly wrong.
Partnerships can work. If its strategic it might need more than 10% share ownership.
Germantrade, when was the last time (or first) when Daimler actually considered another auto company as a partner in the auto business? Not a supplier, a true partner. Chrysler? As we both know, that was no partnership.
Daimler certainly doesn't need Tesla. If EVs are the wave of the future, there's no doubt in my mind Daimler is NOT looking at taking on a symbiotic relationship with an EV producer/retailer.
I think apart from results which where better than expected it is noteworthy that TSLA's net debt situation is far better than expected, pushing financing needs further out.
Here's some statements from JP Morgan on financing:
"While maintaining that currently available cash resources are
sufficient, additional capital would likely help the company to accelerate
the launch timing of Model X (crossover variant of Model S), perhaps to
within 3-4 quarters of the Model S launch. Alpha version of Model X will
be unveiled this December, soon after the release of Beta version of Model
S in September. We believe Model X will require $150MM of capital
investment, significantly below Model S’ (~$500MM) as capital required to
develop platforms, powertrain, etc. will not be carried over. Further,
additional capital may be required to expand production capacity from one
shift to two shifts. All things considered, this suggests any potential
secondary dilution would be relatively modest compared to the company’s
current $2.6B equity market cap."
It seems that equity issuance will be limited in size and will occur later than some expected. TSLA can afford to be very opportunistic and can wait for further good order flow for the Model S.
Maybe this is one of the things shorts hoped for (big dilution). So it will be interesting to see how shorts (28,3% of free float) will act to this report and to a very positive tone in analysts reports.
TSLA, TSLA US
1Q Revenue and Margin Upside; Model S Bookings
Grow; Equity Deal Likely ▲
Price Target: $35.00
Himanshu Patel, CFAAC
Key messages from Q1 results: Overweight-rated Tesla reported
encouraging revenues and gross margin in Q1, saw acceleration in Model
S reservations, and reaffirmed that it could opportunistically tap equity
markets. We raise our 2011e revenues to $179MM ($161MM earlier),
which is now in line with TSLA’s revised revenue guidance of $170-
185MM ($160-175MM earlier). We also nudge up EPS estimates to -$1.98
in 2011 (-$2.14 previously) and -$1.51 in 2012 (-$1.56 earlier). We revise
our DCF-based Dec 2011 price target to $35 ($30 earlier).
Stock View: TSLA remains one of our top medium-term stock picks
despite its high risk profile. In addition to being able to deliver an
impressive ~300 mile pure EV driving range for the pending Model S
(aided by what we think is a ~30-50% battery costs/kWh advantage
versus industry peers), we think many are underestimating TSLA’s nonpowertrain
related vehicle engineering prowess in areas such as safety,
handling, and interior design, all critical differentiators in the luxury
market. Our $35 revised price target is still based on a relatively
conservative terminal value operating margin assumption of 9.0% (8.5%
previously), still substantially below management’s long-term guidance
of around 15% (which, all else equal, would imply a low-$50 DCF
based fair value).
Model-S update: TSLA has now secured 4,600 advance registrations for
the Model S that will be launched in mid 2012 (vs. 4,300 by March-end,
3,700 by mid February, and 3,000 by mid November 2010). Management
believes reservations saw an upward inflection after the company
participated in the Detroit Auto Show in January 2011. TSLA will also
be participating in the upcoming Frankfurt Auto Show this September,
which could further boost Model S advance bookings. It is worth noting
that all reservations to date are being done with minimal (Model S)
marketing efforts. TSLA has capacity to manufacture only 5K Model S
vehicles in 2012 (20K in 2013), suggesting 2012 production capacity
will soon be sold out.
Tesla Motors, Inc. (TSLA)
Neutral Equity Research
Successfully moves past another set of benchmarks in 1Q11
Tesla reported a 1Q2011 adjusted EBIT loss of ($41 million), in-line with
our estimate of ($41 million). We are revising our 2011/2012/2013 adjusted
EBIT estimates to ($197 mn)/($64 mn)/$317 mn from the prior ($173 mn)/
($62 mn)/ $316 mn to reflect higher SGA expense than we had previously
modeled, partially offset by a stronger euro assumption.
Once again Tesla delivered consistent results which, while having limited
direct read-through to the Model S, are encouraging as financial execution
remains on track. The company continues to expect delivery of the first
Model S sedans by mid-2012. Having completed the build of 15 “alpha”
prototypes, the company will continue its significant testing before
assembling pre production “beta prototypes” which are slated to be
shown to the public this summer/fall. The battery segment continues to
progress well, supported by $45 mn in remaining development service
revenue from Toyota, the Daimler A class program which is ramping up
and the smart EV program which increased orders by 300 units. The
company reiterated its expectation that it should be able to complete the
Model S launch with its current liquidity balance (which is consistent with
our estimates, barring any delays) but highlighted again that it is likely to
raise additional funds to support the acceleration of the Model X program
and greater vertical integration at the manufacturing level.
We use an average of EV/Sales, EV/EBITDA, P/E and DCF to arrive at our
new six-month price target of $31 ($29). The largest driver of the increase
is a lower discount rate of 20% (vs. 25% previously) which we now use to
discount out-year values to reflect diminished execution risk with the
Model S alpha build complete and component sourcing in place.
Primary upside/downside risk would be execution on Model S.
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