As many analysts had predicted, the just-published Q1 2015 shareholder letter for Tesla Motors [NASDAQ:TSLA] shows the Californian company posted increasing losses during the first quarter of this year, yet managed to beat analyst predictions on how large those losses would be.

Yet it also managed to hit and pass its planned guidance production volumes for the quarter, producing 11,160 vehicles at an average of more than 1,000 cars per week. In line with its previous estimate for total Q1 sales, Tesla also confirmed that official sales for the quarter totaled 10,045 vehicles, fifteen vehicles higher than the aforementioned estimate. We note — as does Tesla — that this is the highest quarterly vehicle delivery figure in the company’s history.

Losses widen

Driven by the strong U.S. dollar and high capital expenditures in the form of the recently-launched entry level Tesla Model S 70D, construction of the Tesla Gigafactory in Reno, NV., and the recent launch of Tesla Energy, Tesla posted a Q1 GAAP net loss of $154 million or $1.22 per basic share, up from its Q4, 2014 GAAP losses of $108 million.

Using Tesla’s preferred non-GAAP method — which enables Tesla to include future revenue from cars leased to customers through its finance partners — Tesla’s Q1 2015 net losses widened from $16 million in the previous quarter to $45 million.

Tesla’s GAAP net cash outflow from operations was $132 million during Q1, primarily due to a $78 million inflow of cash from vehicle sales to Tesla’s bank leasing partners which the firm must classify as a ‘financing activity’, as well as a $63 million increase in inventory from cars ordered by customers during Q1 but which had not yet been delivered and were in transit at the end of the quarter.

Cash and cash equivalents were meanwhile $1.51 billion at the end of the quarter, a $396 million drop on last quarter, while total non-GAAP revenue was up 55 percent from Q1 204 at $1.1 billion. GAAP revenue also rose to $940 million, yielding a total company gross margin of 28.2 percent on a non-GAAP basis and 27.7 percent on a GAAP basis.

Of its $1.05 billion of non-GAAP revenue ($893.3 million using GAAP methods) Tesla earned $46.6 million in services and other revenue, $22 million of which came from powertrain sales to Daimler and $20 million of which came from service revenue. A further $51 million came from the sale of ZEV credits to other automakers.

In its official Q1 2015 shareholder letter, Tesla CEO Elon Musk and Deepak Ahuja, Tesla’s CFO explain that some $22 million of the posted losses — both GAAP and non-GAAP — can be accounted for by the weakening value of other currencies due to the strong dollar and subsequent revaluation of Tesla’s various foreign currency holdings.

Increasing capital expenditure — up from $369 million in Q4, 2014 to $426 million in Q1, 2015 — accounts for some of the additional losses. While Tesla has been investing in various projects during Q1 this year — including its Model S 70D and Tesla Energy products — Tesla says the majority of its capital expenditure went to the Tesla Gigafactory in Reno, NV., as well as expanding and retooling its production lines in Fremont California ahead of the planned Q3 launch of the all-electric Tesla Model X crossover SUV.

Further expansion

Despite the widening losses, Tesla managed to dramatically expand both its Sales and Service network as well as its Supercharger network. By the end of the quarter, Tesla had more than 425 Supercharging sites globally, while Tesla’s service network now totals 100 Tesla-owned service locations.

In addition, Tesla notes an increasing demand for Model S electric cars during Q1, 2015 over Q1, 2014. Despite limited availability of Model S P85D cars, Tesla says orders were up, specifically on higher-value models. With some markets — specifically right-hand drive markets like the UK and Australia — due to receive both Model S P85D and 70D models for the first time in Q3, Tesla says it is pleased with the increased demand in those relevant markets ahead of the right-hand drive all-wheel drive model debuts.

Only China, where Tesla notes “we still have work to do,” seems to have disappointed the board, although Tesla notes that “we saw encouraging signs of a return to growth in orders there as well” during the last quarter.

Alongside Tesla’s plans to expand its production facilities, the firm says it managed to implement some significant changes during Q1, 2015 to its production facility in Fremont, allowing it to improve its manufacturing efficiency, reduce its per-unit vehicle costs and continue to increase its average per-week vehicle production rates.

Further to Tesla CEO Elon Musk’s promise earlier this year that Tesla will roll out additional over-the-air software updates this quarter, Tesla’s shareholder letter confirms that Tesla intends to release “additional software updates” during Q2 that will “include more Autopilot safety and convenience features for appropriately equipped cars.”

During a conference call following the release of the shareholder letter, Tesla CEO Elon Musk promised production volumes during Q4 this year would double over previous months.

Tesla Energy: $250/kWh price point reached

Following on from last week’s announcement of Tesla Energy — Tesla’s new battery storage business — Tesla says it will now break up its income statement to reflect the new classifications of revenues and cost of revenues between its automotive and energy-related sales.

But it is perhaps the news about Tesla Energy — and more importantly the price point reached for its recently-announced domestic and commercial battery packs — which may be of most interest.

Referred to by the company as its second-generation Tesla Energy grid battery products, Tesla says its residential PowerWall products are hitting a price point of $350 per kilowatt-hour, while its industrial-scale PowerPacks are reaching a price point of $250 per kilowatt-hour.

This confirms what many in the industry have claimed for some time: that Tesla’s price per kilowatt-hour for lithium-ion battery packs is now below the $250 threshold at which many analysts have set as the ‘tipping point’ for electric vehicles.

“The response has been overwhelming, crazy,” said Musk during the shareholder call.  “In the course of less than a week, we’ve had 48,000 reservations for the power wall, 2,500 reservations for the Power Pack.” On average, Musk said 1.5-2 units per reservation had been made for Power Walls, while the 2,500 Power Pack requests amounted to 25,000 units.

“We’ve had to limit our response to those who want to be a distributor,” said Musk. “Things have gone super-viral… they’re off the hook.” Noting that Tesla won’t be able to fulfil its orders for the Power Wall or Power Pack products this year, Musk commented that the number of reservations it has received already account for a large proportion of next-years’ allocation too.

Predicting Power Wall reservations will between 10 and 20 percent of the total Power Pack sales, Musk predicts that most of its products will be sold to grid-connected utility sites rather than private individuals.

The low price per kilowatt-hour also sets a promising target for the Tesla Model ≡, which promises a $35,000, 200-mile electric car some time in the next few years.

For packs made in Fremont, Musk said margins for the Tesla Energy products will be fairly low, but once the Gigafactory is online, Musk gave an estimated margin of 20 percent, with production scaling ‘as fast as we can,’ with demand for stationary storage to be “approximately double that of the cars” moving forward. Given the massive interest in the Tesla Energy products, Musk admitted that Tesla is already seriously considering an expansion its Gigafactory capacity by 50 percent to meet demand, calling it “the logical thing to do.”

Worthy of note, is the differences between the two different PowerWall battery packs. While Tesla’s daily-cycle battery pack is built with a very similar battery chemistry to the Tesla Model S battery pack, Musk says the weekly-cycle battery pack uses a different cell structure with a higher energy density but a lower lifetime cycle limit.

Model X

“This is the best SUV by far,” said Musk during the post-shareholder letter conference call of his recent drive in the latest pre-production prototype of the upcoming 2016 plug-in SUV. Noting that Tesla is still working hard to ensure quality control for the now infamous falcon wing doors and second-row seats, Musk confirmed that the Model X is nearing production.

In addition. tooling at the Fremont facility for the Model X as well as the building of a brand-new paint shop, is now nearing completion.

With the Model X now in pre-production ‘release candidate’ production phase, Musk says the company is on track to meet its Model X delivery schedule for late Q3 this year, but declined to answer specific details on when in Q3 the car would be delivered. Instead, Musk promised that there would be around a 2-month period between initial Model X deliveries and high-volume Model X deliveries. This compares to a six-month delay between the first Model S deliveries and large-volume deliveries.

Shares up

As a consequence of the Earnings call and the better-than-predicted earnings, Tesla stock has already started to rise in after-hours trading, gaining more than six points in the two hours following the close of markets and release of the Q1 earnings report.

At the time of writing, Tesla Shares were up 2.65% in after-hours trading, up to 236.53 per share.

 

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