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After 6 Months Of Delays, Tesla Is Finally On Track With Model 3 Production
April 5, 2018 6:06 pm|Comments (0)

Tesla’s (TSLA) Q1 production update had me singing and dancing with joy. I encourage you to read the whole thing. Or if you prefer, watch this video from HyperChange covering the update:

The top three updates are on Model 3 production, Tesla’s cash flow, and Model 3 quality.

Model 3 production is at a burst rate of 2,000/week

After six months of delays, Model 3 production is finally on track:

In the past seven days, Tesla produced 2,020 Model 3 vehicles. In the next seven days, we expect to produce 2,000 Model S and X vehicles and 2,000 Model 3 vehicles.

If this rate can indeed be sustained into April and even increased, then Tesla is just shy of its goal to produce 2,500 Model 3s/week by the end of March. Bloomberg’s independent model has production about a month behind that target. For Tesla, a month late is basically on time! Moreover, in light of this update, Tesla might only be a few weeks behind.

As always, it bears reminding that this is an arbitrary, self-imposed goal largely designed around motivating employees. It’s not required for any financial, competitive, or technological purpose. A line in the sand just has to be drawn somewhere.

Model 3. Photo by Carl Quinn.

Tesla says it doesn’t need to raise cash this year

Recent alarm about Tesla’s solvency seems to be misplaced:

Tesla continues to target a production rate of approximately 5,000 units per week in about three months, laying the groundwork for Q3 to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow. As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines.

Boom! That’s what I love to hear! Barring further delays, Tesla is about six months out from achieving massive positive cash flow from Model 3 sales. If targets are met, Model 3 will generate quarterly revenue on the order of $ 3.25 billion and quarterly gross profit on the order of $ 810 million. (That’s assuming a $ 50,000 ASP and 25% gross margin about a quarter after a 5,000/week production rate is achieved.) Previously, Tesla has guided that it will post sustained operating profits starting by the end of 2018, with a possibility of net profit before 2019 as well.

Based on my own review of the numbers, I think that Tesla’s cash “crunch” is being exaggerated. There are aspects of Tesla’s finances that are opaque to outsiders (such as the composition of accounts payable), however, so it is encouraging to get confirmation from Tesla on this. Here’s the basic math: As of the end of Q4 2017, Tesla had a cash balance of $ 3.37 billion. In Q4, it burned $ 277 million. At that rate of cash burn, it wouldn’t run out of cash until the beginning of 2021.

Several one-time factors contributed to cash burn for Q4 being so low, such as customer deposits for the Tesla Semi and next-gen Roadster. However, there were repeatable factors as well, perhaps most notably slowing discretionary capex. Tesla can slow expansionary spending to be in line with growth in revenue and gross profit. This makes particular sense when it comes to the sales, service, and charging infrastructure for the Model 3 fleet. We’ll have more hard data in about a month when Tesla releases its Q1 earnings.

The key here is the threshold beyond which Model 3 production goes from a net cash incinerator to a net cash generator. If all goes according to plan, by the end of this year, Tesla will likely have the ability to have positive free cash flow. However, that doesn’t seem to be the plan.

From the sounds of it, Tesla wants to finance capex for Model Y, Semi, Roadster, Solar Roof, Powerwall, Powerpack, and future products with debt and perhaps even equity, plus other sources of cash like customer deposits and securitizing leases. Note that Tesla says raising cash this year isn’t “required.” That doesn’t rule out raising discretionary cash to fund faster expansion.

Tesla has a total of $ 330 million in debt coming due in 2018. Given Tesla’s end of Q4 cash balance of $ 3.37 billion and ramping Model 3 production, $ 330 million is a manageable amount to repay. Heck, Tesla could probably wipe that debt away by collecting Model Y deposits. Because Elon Musk is a rock star.

Some convertible bonds to the tune of $ 920 million are set to mature in March 2019. The conversion price is $ 359.87. I can’t predict the ebb and flow of the markets, but it seems well within the realm of possibility that Tesla’s share price will exceed that $ 360 a year from now. If not, with approximately $ 810 million in quarterly gross profit from the Model 3, repayment will be no problem.

Tesla Semi. Photo by Korbitr.

Tesla’s internal data shows high Model 3 owner satisfaction

Finally, Tesla again shared internal survey data of Model 3 owners:

The quality of Model 3 coming out of production is at the highest level we have seen across all our products. This is reflected in the overwhelming delight experienced by our customers with their Model 3s. Our initial customer satisfaction score for Model 3 quality is above 93%, which is the highest score in Tesla’s history.

Although this is somewhat encouraging, Tesla is of course incentivized to present the Model 3 in the best possible light. Before I consider this matter settled, I want to see data from an independent source like Consumer Reports. Consumer Reports has yet to publish survey data on the Model 3. So, for now, we wait.

What is not particularly informative are anecdotes about Model 3 quality. If you, like me, believe in the Enlightenment values of science and logically rigorous thought, then you’ll agree that anecdotes plucked from large samples seldom reveal the truth and often mislead. Statistics reveal the truth. It is surprising and disconcerting to me that so much investment and media analysis — particularly of Tesla — seems to exist in a pre-scientific, pre-Enlightenment mode of thinking in which fact and conjecture are haphazardly mixed, cherry-picked anecdotes are held up as representative, and rumour and hearsay are credulously accepted. So much of what you’ll read and hear about Tesla is either essentially made up or grossly exaggerated because there is little to no application of Enlightenment criteria of truth.

The way I think about companies is to try to approximate as best I can the scientific method. Any way I can remove my own subjective bias is a relief. Hard data is always a breath of fresh air. So is any other empirical test that can serve to falsify an idea. Without scientific discipline, we will inevitably fool ourselves, and wander around in the darkness.

So, I don’t consider a photo of a Model 3 with egregious panel gaps to be informative. A photo of a Model 3 with seamless panels is equally uninformative. Ignore anecdotes. Find statistics. For now, we simply don’t know the level of quality of the Model 3.

Conclusion

Panic and doomsaying about Tesla may never stop entirely. However, it has taken another step toward demonstrating that it has a sustainable business model capable of long-term growth and profits. A year from now, we will probably be having a very different conversation about this company. I look forward to it.

Disclosure: I am/we are long TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tesla says produced 2,020 Model 3 sedans last week
April 3, 2018 6:06 pm|Comments (0)

(Reuters) – Tesla Inc sought to squash any speculation it might need to raise more capital this year on Tuesday, driving the company’s battered shares higher as it announced it built 2,020 of its cheaper Model 3 sedans in the last seven days.

The company’s reassurance that it does not need extra cash sent a wave of relief through investors who sold shares of the electric carmaker through a week of bad news about its credit rating and semi-autonomous driving technology.

In early trade on Tuesday, Tesla shares jumped as much as 6.9 percent, recouping a third of the past week’s losses. They were up 3.2 percent at $ 260 in midday trade.

Musk’s $ 50-billion dollar venture said it would also churn out 2,000 of the Model 3 cars next week and promised output would climb rapidly through the second quarter.

“Tesla continues to target a production rate of approximately 5,000 units per week in about three months, laying the groundwork for Q3 to have the long-sought ideal combination of high volume, good gross margin and strong positive operating cash flow,” the company said in a filing.

“As a result, Tesla does not require an equity or debt raise this year, apart from standard credit lines.”

Jefferies analysts had estimated that Tesla needed $ 2.5 billion to $ 3 billion of fresh equity to fund the Model 3 rampup and several other Wall Street brokerages have predicted the company would need more funds this year.

Some analysts said there were signs that the company might have prioritized the cheaper car, seen as crucial to its profitability, over its Model X SUV and more-established and expensive Model S sedan.

Tesla said first-quarter deliveries totaled 29,980 vehicles, out of which 11,730 were Model S and 10,070 were Model X.

Both were lower from the previous quarter and the first quarter a year ago.

“Maybe Elon Musk switched staff from Model S and X to Model 3 to get better production numbers for Model 3,” said analyst Frank Schwope from NORD/LB.

Musk himself has taken direct control of Model 3 production and the company says it already has about 500,000 advance reservations from customers for the car.

FILE PHOTO: A Tesla Model 3 sedan, its first car aimed at the mass market, is displayed during its launch in Hawthorne, California, U.S. March 31, 2016. REUTERS/Joe White/File Photo

The Model 3 is the most affordable of Tesla’s cars to date and is the only one capable of transforming the niche automaker into a mass producer amid a sea of rivals entering the nascent electric vehicle market.

Tesla’s consistent failure to meet its production targets – it had promised 2,500 Model 3s would roll off its assembly lines per week by the end of March – has made Wall Street broadly more skeptical about Musk’s promises.

Several criticized as “tone deaf” an April Fool’s tweet from the billionaire that joked his company, which has $ 10 billion in debt, was “totally bankrupt”.

Tesla shares peaked at $ 389 last September and have been declining steadily since.

Analysts, however, are giving the company the benefit of the doubt as a big bet on the future of high-tech electric and self-driving vehicles.

The production numbers, while short of Tesla’s own target, are far above the 793 Model 3s built in the final week of last year.

“The company appears to be near the point of turning the corner on meeting guidance and production performance,” said William Selesky from Argus Research.

FILE PHOTO: A Tesla dealership is seen in West Drayton, just outside London, Britain, February 7, 2018. REUTERS/Hannah McKay/File Photo

(Corrects to show production was for last seven days, not last seven days of March, in paragraph one)

Reporting By Alexandria Sage and Sonam Rai; Additional reporting by Munsif Vengattil; Editing by Patrick Graham, Bernard Orr

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Tesla said to make 2,000 Model 3s per week, stock down
April 2, 2018 6:05 pm|Comments (0)

(Reuters) – Tesla Inc (TSLA.O) was reported to be making 2,000 of its Model 3 sedans per week, enough to ease stock market nerves around billionaire Elon Musk’s electric carmaker on Monday after a week dominated by news of a crash involving its semi-autonomous autopilot.

Musk told employees in a company-wide email on Monday that Tesla had just passed the 2,000 per week rate, according to auto website Jalopnik.

That was short of its 2,500 per week target but a big increase on the 793 Model 3s that the company built in the final week of last year. It produced 2,425 of the cars in the whole fourth quarter. [nL4N1OY42A

Slideshow (2 Images)

Tesla shares recovered from an 8 percent loss before the Jalopnik report filtered into markets to trade down 3.5 percent on the day. bit.ly/2uFdEBr

The company did not immediately respond to requests for comment.

Jalopnik also quoted Musk in the email to employees as saying: “If things go as planned today, we will comfortably exceed that number over a seven day period!”

Reporting by Sonam Rai in Bengaluru, Editing by Peter Henderson and Patrick Graham

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August Sales Are In: Chevrolet Bolt EV Out Sold Tesla Model 3 To The Tune Of 28:1
September 2, 2017 6:43 am|Comments (0)

I’m sure this will change in the months to come, but after Tesla’s (TSLA) initial Model 3 delivery event in July, sales are not off to an impressive start in August. In the morning of September 1, General Motors (GM) reported August month sales for the Chevrolet Bolt EV – the main competitor for both the Tesla Model 3 and Model S.

GM managed to sell 2,107 units of the Chevy Bolt EV in the U.S. market in August. It has not yet reported global sales, which would include Canada and Norway (where it is sold under an Opel Ampera label).

In contrast, the authority on U.S. plug-in car sales reporting, Insideevs.com, reports that it has estimated Tesla Model 3 sales at a grand total of 75 units for August. Yes, seventy-five. I kid you not:

Monthly Plug-In Sales Scorecard

That means that in the U.S. market in August, the Chevrolet Bolt EV out-sold the Tesla Model 3 to the tune of 28:1. Yes, for every Tesla Model 3 sold in the U.S. in August, General Motors sold 28 Chevrolet Bolt EV cars.

I can hear the objection already: But the Model 3 is just ramping up right now! You just wait another month, and it will clobber the Chevy Bolt EV!

Yes, I know. That may very well happen that at some point starting in the next few months. After all, the U.S. is the market where Tesla will focus its sales once it hits 200,000 cumulative U.S. deliveries, so as to maximize the number of units it can sell that are eligible for the (up to) $ 7,500 federal tax credit.

If Tesla hits 200,000 on the first day of a quarter, it will have a grand total of six quarters with an unlimited number of U.S. sales eligible for a federal tax credit. Yes, you heard that right: An unlimited quantity of cars. Every single one it produces, it can sell in the U.S. market and allow the customers to attempt to qualify for the Federal tax credit. If Tesla sells 500,000 units per year – as it has said it will do in 2018 – six quarters at that 125,000 a quarter pace, all directed at the U.S. market, it would mean 750,000 cars milking the Federal treasury, over and above the 200,000 before the trigger.

Furthermore, if you assume that during those 18 months (six quarters) Tesla manages to increase production slightly, that 750,000 number might look more like 800,000, and when it’s all said and done Tesla’s customers would have collected up to a grand total of 1 million federal tax credits of up to $ 7,500 apiece (in the last few quarters, they decline to $ 3,750 and $ 1,875).

Given this focus, and given Tesla’s seemingly perpetual willingness to sell a dollar for 75 cents, the Model 3 proposition is very good for the consumer and should lead to greater U.S. Model 3 sales than the Chevrolet Bolt EV some time in 2018 and/or 2019. So yes, I do expect the Model 3 to beat the Bolt EV in terms of U.S. sales at some point possibly starting within only months from now.

However, the current 28:1 ratio in favor of the Chevy Bolt EV is a deep hole for Tesla from which to climb. Tesla bulls think that it will all happen in September 2017, and if not in September, then in October for sure. Perhaps it will. Otherwise, in November, December… or January 2018. Or at the very least, some time in 2018 or 2019.

In the meantime, GM doesn’t look so bad. It beat the Model 3 to market by almost a year, and so far it’s beating it in U.S. sales to the tune of at least 28:1. Let’s put it this way: I don’t think we’ll ever get to the point where the Tesla Model 3 will beat the Chevy Bolt EV in sales to the tune of 28:1!

But wait, there’s more!

The Chevrolet Bolt EV doesn’t only compete with the Tesla Model 3. It also competes with the Tesla Model S. After all, the Bolt’s passenger interior space is the same (94.4 cubic feet) as the Model S (94.0 cubic feet) and they have similar driving range for the base Model S (238 miles for the Bolt vs 249), even if the Model S of course costs about twice as much.

Looking at the 3Q-to-date U.S. sales numbers (July + August combined), here is how the Tesla Model S compares with the Chevrolet Bolt EV, according to Insideevs:

Tesla Model S: 3,575 units

Chevrolet Bolt EV: 4,078 units

So there you have it. Chevrolet Bolt EV didn’t just out-sell the Tesla Model 3, but also the Model S.

But wait, there’s even more!

We have established that the Chevrolet Bolt EV out-sold each of the Tesla Model 3 and Model S in the U.S., but what about the Model 3 and Model S “combined” for July and August?

Tesla Model S plus Model 3: 3,680 units

Chevrolet Bolt EV: 4,078 units

It turns out that the Chevrolet Bolt EV can play simultaneous chess – or perhaps simultaneous ping-pong? – in that its U.S. unit sales for July and August beat the Tesla Models S and 3 combined.

For a car that’s sometimes so maligned in the media, that’s not bad for the Chevrolet Bolt EV – outselling the Tesla Models S and 3 combined for the cumulative two first months of this quarter. The Bolt EV is definitely the Rodney Dangerfield of the U.S. electric car industry: It gets no respect!

The Chevrolet Bolt EV has not expanded its sales reach much beyond the U.S., Canada and Norway (where it is sold under the Opel Ampera label) yet. One might also question what will happen to the Bolt now that the PSA Group acquired the Opel business from General Motors on August 1. We will just have to see if, when and how the Bolt EV (Opel Ampera) gets rolled out in Switzerland, Germany and beyond. I fear the worst, but hope for the best.

Instead, the Tesla Model 3 is more likely to face a bigger international threat from Nissan (OTCPK:NSANY), with its all-new LEAF 2.0 that is scheduled to be unveiled on September 5 in Japan. This electric car will be made in three factories on three continents, and could be available in more geographies far more quicker than not only the Chevrolet Bolt EV (Opel Ampera) but also the Tesla Model 3.

As such, one might reasonably assume that Nissan will dominate European and Asian electric car sales in 2018, as a result of widespread global availability of the all-new LEAF 2.0 starting in late 2017 or early 2018.

Of course, it is possible that Tesla will juice its September 2017 U.S. sales as a result of massive discounting. We have news reports this morning of Tesla slashing its prices by up to $ 30,000 per car:

Tesla offers “$ 30,000 showroom discounts” and lowers interest rates to boost sales before end of the quarter

For perspective, that means that Tesla’s discounts per car will exceed the expected base price of a Nissan LEAF 2.0, which is estimated to be somewhere around $ 29,000.

With discounts that huge, Tesla should be able to move a lot of units. What if Nissan decided to cut its prices by $ 30,000 as well, so that the car would be completely free?

One might logically conclude that Tesla will see a massive margin decline in the September quarter. As the saying goes, perhaps they will make it up in volume.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was long FCAU and GOOGL, and short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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