Company overview - Tesla, Inc., formerly Tesla Motors, Inc., designs, develops, manufactures and sells fully electric vehicles, and energy storage systems, as well as installs, operates and maintains solar and energy storage products. The Company operates through two segments: Automotive, and Energy generation and storage. The Automotive segment includes the design, development, manufacturing, and sales of electric vehicles. The Energy generation and storage segment includes the design, manufacture, installation, and sale or lease of stationary energy storage products and solar energy systems to residential and commercial customers, or sale of electricity generated by its solar energy systems to customers. The Company produces and distributes two fully electric vehicles, the Model S sedan and the Model X sport utility vehicle (SUV). It also offers Model 3, a sedan designed for the mass market. It develops energy storage products for use in homes, commercial facilities and utility sites.

 

TSLA Details

Geared up for production of Model 3: Tesla Inc (NASDAQ: TSLA) intends to start deliveries to customers in July of its electric vehicle with a $35,000 base price, which would be Tesla’s lowest-cost car. In the quarterly update, TSLA said that the Model 3 vehicle development is nearly complete. The production-intent tooling and processes, are being tested to assess fit and finished to support vehicle software development and to ensure a smooth and predictable homologation process. The road testing was said to be underway to refine driving dynamics and ensure vehicle durability. TSLA’s preparations at the production facilities are on track to support the ramp-up of Model 3 production to 5,000 vehicles per week at some point in 2017, and to 10,000 vehicles per week at some point in 2018. Further, TSLA is also working closely with all Model 3 suppliers to ensure their readiness ahead of start of production.
 
Significantly expanding on infrastructure:Tesla is mainly expanding the infrastructure to support the company’s targets by increasing the density and geographic footprint of the presence.  In 2017, TSLA has planned to add nearly 100 retail, delivery and service locations globally representing over 30% rise in facilities. These additions include the Q1 openings of the first stores in Dubai and South Korea. To significantly improve the customer experience without warranty body repairs, the company has planned to open the first Tesla owned body repair shops later in 2017 while expanding their current network of the third-party Tesla certified body shops. Tesla has planned to add more than 100 mobile repair trucks in Q2 alone. Additionally, TSLA’s new facilities are generally larger than they were in the past. The new service locations commonly have many more service bays and TSLA has tested the implementation of large delivery hubs in Los Angeles, San Francisco, Hong Kong and Beijing.  Further the delivery hubs create an exciting reception for new customers and support much higher delivery levels. Accordingly, the company has planned to expand this customer experience to more cities. TSLA has planned to take advantage of the vehicle technology and design to improve service efficiency. Using remote diagnostics, the company is increasingly able to identify repair needs in advance of meeting with customers and even before customers notice issues. This has helped reduce repair times by 35% this year and TSLA’s goal is to reduce repair times even further. In 2017, TSLA expects to at least double the number of Superchargers and Destination Charging connectors globally to more than 10,000 and 15,000, respectively.  The company intends to build larger sites along the busiest travel routes and broaden the number of charging locations in urban centers to make charging ubiquitous and convenient for everyone. In addition, the company has been rolling out updated Autopilot features over the air to customer vehicles in December. 
 
Strong first quarter 2017 financial performance:The group reported an outstanding rise of 64% in their vehicle production during the first quarter of 2017 against the prior corresponding period, leading them to set a new quarterly record of 25,051 deliveries and $2.7 billion in GAAP revenue. Tesla has posted a 13% sequential increase in deliveries during the first quarter of 2017, leading to the sequential increase in automotive revenue. The average transaction prices (ATPs) improved from Q4 2016, primarily due to the favorable product mix shift and higher option uptake. The Automotive gross margin enhanced sequentially because of improved ATPs and manufacturing efficiencies.  Enhanced Autopilot revenue was recognized in Q1 which contributed $35 million to gross profits on cars delivered in Q4. This was partially offset by $26 million in warranty reserve for the Taketa airbag recall and equipment impairment charges. Moreover, TSLA in the first quarter of 2017 has posted the increase in the operating expenses sequentially as the period now reflects a full quarter of Solar City operating expenses, and there have been $67 million of non-recurring charges related to the Solar City and Grohmann acquisitions and the end of work for Daimler. Excluding these items, the vehicle-related operating expenses increased only 8% sequentially despite a major Model 3 vehicle development progress and expansion of the customer support infrastructure. Non-GAAP net loss has increased by $108 million sequentially during the quarter, but this increase was mainly for the changes in non-cash items. The first quarter cash used in operating activities had improved significantly from Q4 2016 to $70 million, driven by better overall gross margin. The company has generated $117 million in cash in Q1 after adding the cash received for vehicle sales to the leasing partners but classified in the financing section of the statement of cash flows. The group’s net book value for their Supercharger network rose to $214.9 million as of March 31, 2017 as compared to $207.2 million in December 31, 2016. Tesla’s Supercharger network comprises 828 locations and the group intends to further invest in their Supercharger network with less capital spending.
 


Revenue performance (Source: Company Reports)
 
Rising demand for Energy products: Tesla expects their energy products to rise and is aiming to cut customer acquisition costs by lowering advertising spend, stopping door-to-door sales and boosting the sale of solar products in Tesla stores. To achieve this, the group tested sales of their solar and storage products in several Tesla stores and witnessed sales productivity rise by 50% to 100% relative to the best non-Tesla retail locations. During the fourth quarter of 2016, the group reported that their second-generation energy storage products, Powerpack 2 and Powerwall 2, would offer a significant price advantage per kilowatt-hour (kWh) and higher energy density.
 


Energy Generation and Storage Revenue and Gross Margin (Source: Company Reports)
 
Positive outlook:TSLA expects the year-to-date capital expenditures to be slightly over $2bn by the time it starts Model 3 production. The company reiterated its forecast of delivering 47,000-50,000 Model S and Model X cars in the first half of 2017, which represents 61% to 71% annual vehicle delivery growth. In 2017, the group plans to add nearly 100 retail, delivery and service locations globally, representing an approximately 30% increase in facilities. The company also expects additional investments through the remainder of the year, as the company increases automation and add production capacity. TSLA expects the operating expenses to be flat to slightly up from Q1, during their second quarter including expenses related with the final stages of Model 3 development and growth in the customer support infrastructure. On the other hand, Non-GAAP Automotive gross margin would be cut by over 250 basis points during the second quarter on the back of the absence of the one-time benefit of Autopilot software revenue recognized in Q1 coupled with fluctuations in product mix. However, Tesla forecasts their Model S and Model X vehicle costs to decrease during each quarter driven by their manufacturing efficiencies. For 2017, Tesla forecasts at least double the number of Superchargers and Destination Charging connectors globally to more than 10,000 and 15,000, respectively.
 


Model 3 Release Candidate (Source: Company Reports)
 
Stock Performance:Tesla stock has risen about 80% in the last six months (as of May 31, 2017) and we believe this bullish momentum in the stock would continue in the coming months at the back of the Model 3 production that is about to start.Moreover, the group forecasts to build 500,000 vehicles in 2018.  TSLA has also become the most valuable auto company in the US, surpassing the market caps of their competitors, General Motors and Ford Motor Company. The group is fortifying its lead in the electric-vehicle market and can leverage well in autonomous driving with its next big innovation. TSLA is expected to touch upon these points in its upcoming annual meeting of stockholders on June 06, 2017. We give a “Buy” recommendation on the stock at the current price of $ 341.01
 

TSLA Daily Chart (Source: Thomson Reuters)

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