Tesla Inc. Earnings: Sales Soar, and Model 3 Is Coming

By Daniel Sparks Markets Fool.com

Expectations were high ahead of Tesla's (NASDAQ: TSLA) fourth-quarter earnings report, with investors particularly eager to get an update on the company's important upcoming Model 3. In the three months leading up to the results, Tesla stock soared about 51%.

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Tesla's fourth-quarter report seems to deliver on high expectations, with the company reporting strong growth across its business and management providing an optimistic update on Tesla's important Model 3 program.

Image source: author.

Here's what investors should know about the report.

The raw numbers

Metric

Q4 2016

Q4 2015

Change

Revenue

$2.3 billion

$1.2 billion

88%

Automotive revenue

$2.0 billion

$1.1 billion

79%

EPS

($0.78)

($2.44)

$1.66

Non-GAAP EPS

($0.69)

($2.02)

$1.33

Vehicle production

24,882

14,037

77%

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Data source: Tesla fourth-quarter shareholder letter. Table by author.

The results

Tesla's 88% year-over-year increase in fourth-quarter revenue was driven primarily by a 79% jump in the company's automotive business, as vehicle production and deliveries climbed 77% and 27% year over year, respectively.

Notably, Tesla's reported revenue benefited from the inclusion of six weeks of SolarCity's operations, since the solar company was acquired in November.

While losses narrowed year over year, the company's Jan. 3-reported "short-term production challenges" associated with its transition to new Autopilot hardware for its vehicles in Q4 weighed on deliveries and made it impossible for Tesla to sustain the profitability it achieved in Q3. The company delivered 22,400 vehicles -- about 3,000 below its initial guidance and down from 24,821 deliveries in the third quarter of 2016.

What management had to say

Tesla was optimistic about Model 3, saying it was on plan for the initial production of the $35,000 vehicle in July and volume production in September. Further, Tesla said it expects Model 3 production to "exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018."

Model 3. Image source: Tesla.https://teslamotors.app.box.com/v/pressfiles/1/7248453397

Also, Model S and Model X seem to remain in high demand ahead of Model 3. Tesla said fourth-quarter Model S and X orders reached a record high, increasing 49% year over year.

Tesla said its integration of SolarCity's operations is going well, stating that the company is "on track to generate $500M in cash (including growth of non-recourse project financing) by 2019 and achieve the cost synergies we committed to upon acquiring SolarCity." To meet that goal, Tesla is taking the ax to SolarCity's high advertising expenses and will be selling solar products at Tesla stores. In addition, Tesla will continue shifting SolarCity's system sales away from leasing.

Tesla provided more details on how it is already on track with this target:

As evidence that we are on plan, our solar operations added $77 million of cash during the six weeks following the close of the acquisition, with 28% of solar capacity deployed during Q4 sold rather than leased, up from 13% sold in Q3, and up from less than 4% sold in Q4 2015.

For guidance, the company opted to refrain from a full-year outlook, focusing instead on the first half of the year.

We expect to deliver 47,000 to 50,000 Model S and Model X vehicles combined in the first half of 2017, representing vehicle delivery growth of 61% to 71% compared with the same period last year. In addition, both GAAP and non-GAAP automotive gross margin should recover in Q1 to Q3 2016 levels and then continue to expand in Q2 2017.

Further, Tesla says it expects to invest about $2 billion to $2.5 billion in capital expenditures "ahead of Model 3 production."

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.