Tesla Motors clocked $11.8B revenues in 2017, but lost $675.4M in Q4. Here are its plans for 2018Harshith Mallya
Just a day after launching Falcon Heavy and pushing a Tesla Roadster into orbit as part of the payload, Elon Musk's Tesla Motors, Inc. shared its Fourth Quarter 2017 financial results. The electric vehicle(EV) and energy storage company, noted that it had a cash balance of $3.4 billion entering Q1 2018 and had clocked revenue of $11.8 billion in 2017, up 55 percent Y-O-Y from organic growth.
But Tesla clocked losses of $675.4m in the three months ending December 31, compared with a loss of $121 million for the same period last year.
The company noted that 2017 was an important year in its history. Among other things, they started delivering Model 3 to customers, unveiled the Semi Truck and the next-generation Roadster, installed the world’s largest battery in Australia, and had record vehicle production and deliveries of Model S and Model X.
Tesla also produced 2,425 of its new Model 3 electric cars in the fourth quarter and delivered 1,542, missing Wall Street expectations. On a call with analysts Musk said that the production is getting back on track. He said,
If we can send a Roadster to the asteroid belt we can probably solve Model 3 production.
In Q4, Tesla delivered 28,425 Model S and Model X vehicles and 1,542 Model 3 vehicles, totalling 29,967 deliveries. Combined Model S and Model X deliveries in Q4 grew 10 percent globally compared to their prior record in Q3, and they grew 28 percent compared to Q4 2016.
The report which was signed by Elon Musk, Chairman & CEO of Tesla and Deepak Ahuja, Chief Financial Officer noted,
We also learned many lessons from the slower than planned production ramp of Model 3. All of this sets the stage for 2018 to be a transformative year for us.
Electric vehicles(EVs) and mobile servicing
The company noted that as they had indicated heading into Q4, production of Model S and Model X during the quarter was limited to 22,137 vehicles due to reallocation of some of the manufacturing resources to Model 3 production. This enabled Tesla to reduce their finished-goods inventory to the lowest level in about 18 months.
Combined Model S and Model X net orders in Q4 were just shy of Q3’s all-time high. Tesla noted that combined orders for Model S and Model X grew significantly in 2017 compared to 2016. There had initially been concerns about whether Model 3 would derail Model S and Model X. But the opposite seems to have occurred. The report noted,
In stores where Model 3 is on display, customer foot traffic has increased considerably and orders for Model S and Model X have in fact increased. There has been an even bigger increase in solar and Powerwall sales.
During Q4, Tesla opened 12 new store and service locations resulting in 330 total locations worldwide at the end of the year. Service capacity more than doubled in 2017, partially due to new locations, but also through a 50 percent increase in productivity of existing service locations, as well as the significant expansion of Tesla's Mobile Service fleet, which now has 230 vehicles.
Tesla noted that in North America alone, Mobile Service is now completing 30 percent of all service jobs, allowing those customers to never have to leave their homes or offices to get their cars serviced.
Tesla claims that its Mobile Service has achieved customer satisfaction that averages 98 percent. In addition, the cost of servicing with their Mobile Service fleet is significantly lower than from their service centers. In 2018, Tesla will continue to increase their service capacity with the goal of always remaining ahead of the Model 3 ramp.
In Q4, Tesla deployed 143 MWh of energy storage products, growing 45 percent from Q4 2016. Deployment of 129 MWh of energy storage in South Australia will be recognised in Q1 2018 based o the commercial transfer of the site to the customer. Tesla also deployed 87 MW of energy generation systems in Q4, which is 20 percent less than Q3 2017.
The company noted that Solar MW deployed declined as volumes continue to be impacted by their decision to close certain sales channels earlier in 2017 and to focus on projects with better margins. In addition, solar deployments were affected by the short supply of Powerwalls for customers who wanted solar plus Powerwall in their house. The report noted,
While volumes may continue to be impacted by these factors over the near-term, we expect growth to resume later this year.
Talking about Tesla's plans for 2018, Musk and Ahuja noted in the report,
2018 will be a transformative year for Tesla, with a high level of operational scaling. As we ramp production of both Model 3 and our energy products while keeping tight control of operating expenses, our quarterly operating income should turn sustainably positive at some point in 2018.
Tesla expects Model S and Model X deliveries to be approximately 100,000 in total. As their sales network continues to expand to new markets in 2018, the company believes that orders should continue to grow. With demand outpacing production, Tesla plans to optimise the options mix in order to maximize gross margin. Tesla plans to target a weekly Model 3 production rate of 2,500 by the end of Q1 and 5,000 by the end of Q2. The report noted,
"Also, we are focused on achieving our target of 25 percent gross margin for Model 3 after our production stabilises at 5,000 cars per week."
Tesla also noted that capital expenditures in 2018 are projected to be slightly more than 2017. The majority of the spending will be to support increases in production capacity at Gigafactory 1 and Fremont, and for building stores, service centers, and Superchargers. Additionally, Superchargers will start generating revenue in 2018 with pay per use charging primarily by Model 3 customers.
Tesla believes that in 2018, hundreds of thousands of people will switch to their EVs and many others will turn their houses into near self-sufficient energy generators. Tesla believes that 2018 will be the year when they will achieve true cost parity - "producing a premium EV like the Model 3 will be no more expensive than producing an ICE vehicle, something that many believe is not yet possible".