Tesla: Still Not Enough Progress – Seeking Alpha

After the bell on Wednesday, Tesla Motors (NASDAQ:TSLA) finally published its fourth quarter results. The company beat expectations on the top line, but reported a larger-than-expected non-GAAP loss. Additionally, while the company gave some Model 3 details, there still remains a lot of questions moving forward.

First, the company guided to 47,000 to 50,000 Model S and X units in the first half of 2016, showing that demand for these vehicles has definitely topped out at the moment. I've received many comments in my prior articles that Tesla would be increasing deliveries of these models, but that isn't the case. Tesla didn't provide any production guidance for this period, but the company was supposed to be past 2,400 vehicles sometime in Q4 2016.

Even on a 25-week basis, that would mean 60,000 units in the first half of the year, assuming no production improvements, and with the added vehicles in transit from Q4, Tesla should have been approaching this level. Obviously, demand is not where many think it is for the current vehicle lineup. Customer deposits also declined by nearly $30 million sequentially, despite the rise in vehicles in transit. US delivery numbers for January were sluggish, and the company is now facing a large hurdle in Hong Kong.

As for the Model 3, Tesla expects to start limited vehicle production in July and hopes to ramp production to over 5,000 vehicles per week in Q4, then past 10,000 a week sometime in 2018. Given that CEO Elon Musk previously said production of 100,000 to 200,000 Model 3 units this year, it seems that Tesla will not come close to the midpoint. Even if the company averages 5,000 units a week in Q4, that's just 65,000, and that much won't be produced in Q3. I'm guessing a range of 75,000 to 100,000 for the year is more appropriate.

Another troubling fact is that automotive gross margins fell by 280 basis points sequentially on a non-GAAP basis, when excluding SBC and ZEV credits. Part of this fall was due to autopilot revenues not being recognized until Q1 because of the delayed rollout. Tesla hopes to get back to Q3 2016 margin levels in the coming quarters, but the company was supposed to be at 30% for the S and 25% for the X by the end of 2016. With margins continuing to be well behind plan, one must wonder how profitable the Model 3 can really be.

As for capital expenditures, Tesla spent just $521 million in Q4, about half of what was previously forecasted. The company cited some shifting payment terms and efficiencies, but it has continued to spend less than expected. The company's cash balance increased in the period, partially thanks to the SolarCity acquisition. However, long-term debt also soared to nearly $6 billion. Total liabilities now stand at nearly $16.75 billion.

Tesla shares haven't done much in the after-hours compared to the expected roughly 6.5% move the options market was pricing in as there really wasn't much ground-breaking news. Tesla reported a 2016 year that missed several guidance points (deliveries, margins, non-GAAP profitability, capital raises, etc.), and 2017 guidance was not impressive for the S and X. While investors will certainly focus on the Model 3 ramp and launch of energy products, Tesla still has a lot to prove, especially given the recent surge in shares.

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Tesla: Still Not Enough Progress - Seeking Alpha