Tesla Earnings: All About 2016

Early AM today, Seeking Alpha published my take on Tesla’s earnings. To summarize, Q4 was a miss but this year is expected to be great as customer deposits for buying Tesla’s kept growing and reached a record $284 million and guidance was great. The much anticipated Model 3 unveil is on March 31.

Since I wrote the article, Tesla CEO Elon Musk posted on Twitter that Model 3 deposits start in stores March 31 and online on April 1.

Disclosure: Long TSLA.

The Tesla Model X Manufacturing Issues: No Big Deal Long Term

I’ve been covering Tesla a lot at Seeking Alpha. But I hope to start publishing more on my blog along with SeekingAlpha if (big if) I get the time. This might feel a bit out of context, especially since all my blogs are now merged, so I recommend reading some of my Seeking Alpha articles first if you are not familiar with Tesla or my take on the company. You can start here with this article I wrote two and a half years ago.

If you are not familiar with the Model X, it is Tesla’s new large 7 passenger crossover with Falcon Wing doors, possibly the safest and fastest SUV on the planet.

Tesla Model X

Model X Sales Ramp

If you read the news and analysis about Tesla Motors (TSLA), there is widespread doom and gloom, especially about the Model X sales ramp. The Model X is no doubt a complicated vehicle and Tesla has had a lot of trouble producing the vehicle. It brought seat production in-house because suppliers couldn’t make a seat to Tesla specifications. The manufacturer for the mechanism for the Falcon Wing door couldn’t deliver and is currently being sued. In spite of all this Tesla managed over 200 deliveries (actual sales, they produced more) of the car last year and is currently expecting the order backlog to clear by summer with new orders expected to be delivered mid-late 2016.

However, the Model X backlog is estimated to be over 20,000 orders. If Tesla manages to clear the backlog by the end of the year and squeeze in a few more orders, it will be the fastest ramped alternative vehicle in history, tying or even beating the current record holder, which is none other than Tesla’s own Model S!

So while people look at the daily news and speculation, Tesla, with all its problems, is expected to pull off a feat that even other established 100 year old manufacturers are unable to accomplish.

Here is what the sales ramps of the Toyota (TM) Prius, Chevy (GM) Volt, BMW (BAMXF) i3 and Nissan (NSANY) Leaf look like compared to the sales of the Tesla Model S and my expectations of 25,000 Model X to be delivered in 2016.

This is in spite of the fact that the Model S and Model X are from a brand new auto manufacturer with no experience making cars. And in spite of the fact that the Model S/X are vehicles that compete in segments with smaller volumes priced at nearly double or more than these competing vehicles. While alternative fuels are not a focus at other companies, with decades of experience, one would think that they can outsell a fledgling automaker with no experience? The comparisons do not end there. With their first sedan and SUV, Tesla has managed to create the longest range EVs, the fast accelerating cars in their segments among other firsts like OTA updates. And Tesla even managed to get a 5* safety rating in all categories for their car, a feat that other manufacturers are not yet able to accomplish across their entire fleets.

2016 Production and Sales

Anyway, so what does this current doom and gloom mean this year? I expect Model S sales to remain stable at 50,000 and Model X sales to be around 25,000 bringing the total to about 75,000 for the year. This represents approximately 50% unit growth. I also expect Model S average selling price (ASP) to remain stable and Model X ASP to be well over $100,000 as most of the units delivered this year are expected to be loaded. So I expect revenue growth to be over 50%.

Tesla’s own estimate is production (not sales) of an average of 1600-1800 cars/week, but I currently do not expect them to reach that kind of number until the second half of the year. I’m assuming that as volume rises, sales numbers will closely track production numbers. Even if not, Tesla generaly empties inventory in some quarters (like Q4 last year) and sales catch up with production. For the first half, I expect sales numbers similar to Q4 production at around 15000 a quarter, giving us about 30,000. After that I expect Model X production issues to be sorted out and volume production to begin and I expect another 45,000 sales during the second half.

Catalysts for the Stock

CPO: Q4 2015 was the first time Tesla sold more than a handful of Certified Pre-Owned (CPO) cars and since then Tesla has had a steady stream of available cars to sell. During earnings, I expect some more color on the profitability of this program.

Energy Storage: As Tesla ramps up production of their energy storage products – the Powerwall for residential storage and the Powerpack for commercial/utility scale storage, this business is expected to add to both the top and bottom line. I expect the guidance for this business to be robust as Tesla’s Gigafactory in Nevada starts pumping these out in volume.

Model 3: There is a lot of scoffing at the Model 3 and not enough scoffing at Porsche’s (POAHF) 2020 competitor to the 2012 Model S or the Batmobile from Faraday Future, a Chinese funded startup in Nevada. However, the expectation is that pre-orders for the Model 3, expected to begin late next month will be off the charts. I’m one of those who will pre-order.

Model X Reviews: Model X reviews have not yet started showing up but the expectation is they will be glowing like the Model X. The car stole even Bentley’s thunder, with faster acceleration. This year the Model X is likely to get rave reviews and win awards galore as a one of a kind green SUV-supercar.

As I write this the stock is at 52 week lows and the stars are expected to align this year from several expected catalysts for Tesla. I’m adding more at every opportunity because I expect Model X issues to be resolved soon and all the other catalysts to help propel the stock upward long term. In the early days of the Model S, these same worries persisted as for the Model X, that Tesla wouldn’t be able to make the car, wouldn’t be able to sell the car. And now the Model S is the top selling luxury car in its segment. More of the same is in the cards for the Model X.

Disclosure: We are long TSLA.

Tesla’s New World’s Fastest 4 Door Sedan and Truth About 0-60 Times – $TSLA

As I write this Tesla stock is lower after the D announcement. My recommendation buy on dips like today.

Just to be clear about the performance of the car, to get 0-60 in 3.2s on the new Tesla, you put the car in “insane” mode and mash the pedal. And then scream and go wow at the autopilot.

Here is how you get advertised 0-60 times on a BMW M6 according to MotorTrend

“First, you need to place the seven-speed dual-clutch transmission in manual mode. Then, you hit the little button below the shifter joystick twice to put the transmission into the fastest shift mode. Next, you hold the traction control button down for about 10 seconds to turn all the nannies off. Then you touch the brake pedal lightly with your left foot and with your right hand push the stick forward. Next, release the brake. Finally, you simultaneously jam the throttle to the floor (making sure to really jam it, as the BMW has a stupid detent about 90 percent of the way down that you have to kick through) and release the stick.”

Here is how you get advertised 0-60 times on a Porsche:

Preconditions:
– Launch Control should only be used when the engine has reached operating temperature.
– “Sport Plus” mode must be switched on (indicator light on the button comes on and SPORT PLUS appears on the
digital speedometer or in the spoke of the steering wheel with shift paddles).
1. Press the brake with your left foot.
2. Quickly press the accelerator down fully (kickdown activated) and hold it.The engine speed will level off at around 4,500 rpm on the Panamera,at around 5,500 rpm on the Panamera 4“. Launch Control active” appears on the multi-function display.
3. Release the brake within a few seconds.Remaining stationary for a long time with “Launch Control active” can lead to overloading of the transmission.To protect the transmission, the engine power is then reduced and the “Launch Control active” process is cancelled.

Also what investors sometimes miss in Tesla’s announcements is that improvements are generally an over the air software update away. So if you buy a car with the autopilot hardware, the software will keep on improving and making the experience better, something sorely lacking at other manufacturers.

For more on my opinion on Tesla’s growth read my article at Teslarati – Projecting Tesla’s growth for the next 6-10 years.

Disclosure: Long TSLA