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Tesla (TSLA) hits all-time high in afterhours trading on blowout 2020 guidance

Tiger Uppercut!

Asif Khan

January 29, 2020 1:30 PM

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Tesla has reported revenues of $7.38 billion and adjusted earnings per share of $2.14/share. The company also stated that they will exceed 500,000 units delivered in 2020 as a result of the Chinese ramp of Model 3 and the Model Y ramp in Fremont, California. 

Some other highlights from the TSLA Q4 2019 earnings release:

• Tesla cash on hand grew by $930 million to $6.3 billion
• Tesla had free cash flow (operating cash flow less capital expenditures) of $1.0 billion in Q4 2019
• $359 million in GAAP operating income; 4.9% operating margin in Q4 2019
• $105 million in GAAP net income in Q4 2019
• Model Y production ramp started in January 2020, ahead of schedule
• Increased Model Y AWD EPA range to 315 miles from 280 miles
• Record vehicle deliveries of 112,095 vehicles in Q4 2019
• Record Q4 storage deployment of 530 MWh.
• Tesla returned to profitability in the second half of 2019
• Tesla generated $1.1 billion of free cash flow in 2019

Our pace of execution has also improved significantly, as we have incorporated many learnings from our experience launching Model 3 in the United States. As a result, we were able to start Model 3 production in Gigafactory Shanghai in less than 10 months from breaking ground and have already begun the production ramp for Model Y in Fremont.

None of this would be possible without strong demand for our products. For most of 2019, nearly all orders came from new buyers that did not hold a prior reservation, demonstrating significant reach beyond those who showed early interest. Amazingly, this was accomplished without any spend on advertising. As more people drive our cars and as the industry rapidly validates electrification, interest in our products will continue to grow.

Higher volumes driven by Model Y and Gigafactory Shanghai, continued improvements in operating leverage, and further cost efficiencies should allow Tesla to ultimately reach an industry-leading operating margin.

Automotive revenues of $6.368 billion in Q4 2019 were up slightly from the $6.323 billion in Q4 2018. GAAP Net income ws down from 2018 in the quarter. 

In 2019, our revenue growth was positively impacted by a strong increase in vehicle deliveries. Revenue growth was offset by higher lease mix*, Model 3 becoming a larger part of our mix, introduction of the Standard Range trims of Model 3, and adjustments to vehicle pricing. These changes have resulted in a reduction to the average selling price (ASP) relative to 2018. We do not expect ASP to change significantly in the near term, which means volume growth and revenue growth should correlate more closely this year.

We are positioned to accelerate our revenue growth further through increasing build rates in Gigafactory Shanghai and our Model Y production line in Fremont. These production increases will allow for higher total vehicle deliveries and associated revenue. GAAP gross profit of $4.1B remained essentially flat in 2019 compared to 2018. Volume growth and successful cost reduction efforts were offset by normalization of ASP, mix shift towards Model 3 and a higher lease mix.

Sequentially, GAAP gross margin remained relatively flat in Q4 compared to Q3, while we ramped Model 3 production at Gigafactory Shanghai. While we saw an increase in operating expenses in Q4 (driven mostly by $72M of non-cash SBC expense related to one more 2018 CEO award operational milestone becoming probable), higher gross profit resulted in a 72bp sequential improvement of GAAP operating margin to 4.9% in Q4.

Quarter-end cash and cash equivalents increased by $930M QoQ to $6.3B, driven by positive quarterly free cash flow of $1.0B. Capital expenditures increased sequentially due to investments in Gigafactory Shanghai and Model Y preparations in Fremont.

It seems like lease accounting will definitely have an effect on revenue recognition going forward, which the company stated lead to the weaker revenue growth in Q4 from the previous year. Here's a breakdown of the unit sales and leased vehicles:

Tesla's guidance and unit sales outlook were definitely the highlight of this quarter. The company expects vehicle deliveries to top 500,000 in the full year of 2020. The company also expects to be cash flow positive each quarter going forward. They did note that there could be some quarters around the ramp of a new product that this might not be the case. "We continue to believe our business has grown to the point of being self-funding." read the 2020 outlook.

A few production updates to note are that production of the Model Y has already begun to ramp at Fremont ahead of schedule. This is a term Tesla purchasers might not be used to hearing, but yeah, the Model Y is coming out earlier than expected and with better range than initially thought. Nice UPOD, Elon and Co. GG. Tesla also said that they plan to produce limited volumes of Tesla Semi in 2020. T

This is a banger of a quarter, and I will be back to provide coverage of the Tesla Q4 2019 earnings results conference call when it starts at 6:30 PM ET.

Tesla (TSLA) Q4 2019 Earnings Release Conference Call

Here are the highlights from the conference call:

• Stock price starts the call at $649.89/share at 6:32 PM ET.
• Elon, Zach, and the funky bunch are on the line.
• Q4 results were announced at 4:00 PM ET today.
• Elon opening remarks
• "Q4 was another strong quarter."
• $20 billion of revenue with zero advertising spend.
• Speaks to the nature of the product.
• Fremont factory back to Numi's record from back in the day. Expected to exceed that output from the plant.
• Congratulations to Shanghai
• Excited and optimistic about the Shanghai factory.
• Broke ground on the Model Y factory in China
• Started production of Model Y thanks to great effort of team
• Cybertruck reveal, "that went very well."
• Trying to build a better product in every way.
• The goal was to kick the ass out of every pickup truck.
• Demand has been incredible.
• Never seen anything like it, basically.
• We will sell as many as we can make.
• The product is better than they realize.
• They underestimate the awesomeness of it.
• It's just great.
• FCF of $1 billion while doing the Model Y ramp and Shanghai going online
• Testament to the incredible performance of the Tesla team.
• Thanks the Tesla teams for helping to grow the company.
• Model Y, Giga Building, Tesla Semi, Solar, Battery, FSD, Next Gen Roadster, and more products
• Touts companies roadmap
• You look back 10 years from today
• We will produce 1000 more cars per day than we did in 2010.
• So, where will we be in 10 years? It is a very exciting prospect.
• Zach jumps on the mic.
• Model 3 demand is transitioned from preorders to new demand
• New production capacity coming online faster and cheaper thanks to things they learned in Model 3 ramp
• Higher volumes, improved capex, working capital management, lead to postive gaap net income in Q3 and Q4 2019
• Stock Based Compensation was up due to Elon's stock grant, because he is killing it.
• Forecasting the best performance in company history.
• One and one and a half week slowdown at China factory due to Coronavirus.
• Stock is at $648/share 6:44 PM ET
• Q&A begins
• investor question about California demand due to new home construction laws
• Elon: "demand is very strong," admits to coming off of a low base.
• Seeing a lot of interest
• It's the future we want, but because it is a new and quite revolutionary product, there are a lot of challenges to overcome
• the Buffalo factory is doing great
• Bad question about car sharing
• Elon: Car sharing can be done before FSD
• Something we can do.
• Superchargers at airports?
• Ridesharing while using Tesla Insurance
• How many customers are using Tesla Insurance?
• When will you use data learned from Tesla Insurance to lower the cost?
• Zach: Expand it to other locations
• talking to regulators in other places
• working on processes to adjust rates
• working with regulators
• significant amount of innovation, and this will be rolled in over time
• Elon: Insurance is going to be quite a major product for Tesla in the future
• Poor feedback mechanism between insurance rates and how the car is being driven
• we can see that in real-time
• FSD retrofitting queston
• Elon: I said we were hoping to be feature-complete by the end of the year
• Feature complete means it has some chance of getting somewhere with no intervention.
• FSD autonomy core autopilot software team is making progress
• The apparent progress as seen by consumers will be seen as very rapid, but we are focused on a very strong foundation. 
• Moving to video training
• all eight cameras simultaneously
• it is a huge leap in labeling efficiency
• we are making great progress on that
• Most retail investors seem to understand Tesla better than analysts, do you even have to answer questions from analysts?
• Elon: A lot of retail investors have deeper insights than wall street analysts
• Some remarkable insight from retail investors like me, Asif Khan.
• Gross Margin and Operating Expense question
• Stock at $648.75/share at 6:55 PM
• Touts the capabilites of the Shanghai plant.
• Significant reduction of cost of Model 3 in Shanghai compared to Fremont
• Similar margins in both factories
• Chinese customers buying the more affordable Model 3, leading to similar margins
• Elon comments on efficiency of building cars where you sell them instead of putting them on boats in California
• Stock at $647.40 at 6:58 PM ET.
• Capital Raise Question
• Elon: "We're actually spending money as quickly as we can spend it. No artificial holdback on expenditures."
• We are not artificially limiting our expenses
• Zach: Some of our learnings during the Model 3 launch period was that we great too quickly and too in a complicated manner
• Reduction in costs in recent year due to efficiencies seen in those mistakes.
• Stock back at $649.50/share at 7:00 PM ET.
• Can we please talk about cost control? Growth vs Gross Profit Growth?
• Zach: We have learned a lot about cost efficiency. Operating expenses will start to tick up.
• Battery question
• Elon talks about battery efficiency.
• Rapidly approaching a 400 mile range on a Model S.
• Model S and X have more range than we are currently stating
• lol
• They just haven't got around to the EPA rerating
• It has been that way for awhile
• lol
• Q&A from Wall Street Jaboofers begin
• Adam Jonas MS
• Excellent retail questions
• "potential for Tesla cars and Starlink terminals?"
• Elon: It certainly could happen in coming years. 
• Starlink is really for homes and aircraft. The attenna is about the size of a medium pizza.
• It would work
• Adam Jonas: How would compatibility with a Starlink help the Tesla vehicles?
• This is a bad question from a Wall Street Jaboofer
• Elon: I don't think about it very much to be honest.
• Dan from Wolf of Wall Street 
• Capex guidance question
• long term guidance for capex?
• Elon: I don't think we want to tell you what our capex will be this year
• It is not artificially limited
• we will spend a lot of money this year
• The challenge comes in decided which way to spend the money
• Elon: There are efficiencies in the company that would not be apparent to customers, but apparent in our financial results
• Dan from Wolf: followup on building demand and capacity
• Zach: Our internal plans are for faster growth. The Shanghai facility has a loan facility.
• Growth in China will help fund growth elsewhere
• Elon: 50% growth
• Gene "the Hammer" Munster: Congratulates Tesla on quarter. How many of these Cybertrucks can you make?
• Elon: Demand is far more than we can reasonably make in the space of 3 or 4 years
• Man that rules
• We are focused on increasing our battery production capacity
• We need more batteries to produce more vehicles
• That is part of why we have not accelerated production of the Tesla Semi.
• Steep ramp in battery production
• very fundamental 
• extremely difficult
• Battery Day probably in April 2020
• Go through what the challenges are
• How do you get from here to a couple thousand GW/year
• Gene: High Density Passenger Vehicle?
• Elon: Minivan? We have to scale battery production to crazy levels that people cannot fathom today.
• Wall Street Jaboofer: Difference between Model 3 and Model Y? Followup Will Model 3 sales grow from the release of Model Y?
• Elon: Model X increased Model S sales
• They both increased
• We are not worried about demand. We are worried about production.
• Elon: We have to go as fast as we can with the Model Y. 
• Stock at $649/share at 7:17 PM ET.
• Model 3 and Model Y expand as all three factories go live in Shanghai, Berlin, and Fremont.
• Colin Rush, Oppenheimer: Pricing Strategy question? Is there a per product target for profit margins?
• Elon: focused on positive cash flow
• Zach: agrees on growth while staying profitable
• Elon: High margin comes from autonomy.
• Autonomy sales not as good in China
• As we fix that, we will see more people buying it
• As we get closer to FSD, the margins will grow
• Powertrain followup from Colin from Wall Street Inc.
• Elon: Our powertrain is pretty damn good
• Touts Tesla powertrain versus Taycan with similar battery pack
• Colin: How do you lower the cost of the powertrain
• Elon: Tesla is all about hardcore engineering, - he sounds baked
• ASP question about flat guidance in pricing for 2020
• Elon: we will adjust according to demand
• Zach: relative to the current Model 3, China Model 3 ASPs are lower
• Capital raise question again
• Why not pay down debt or make acquisitions?
• Elon: who should we acquire?
• lmao
• Autonomy companies?
• Elon: We are not aware of anyone we would want to acquire
• Debt?
• Elon: Diluting the company to pay down debt does not make sense right now
• Zach: we are not constrained
• Elon: We will keep steadily paying down our debt
• Elon sounds pissed by this question
• Pierre from New Wall Street Research
• 800,000 in unit capacity for cars by the end of the year? 
• Where do you stand now in battery capacity?
• Question about what they are doing better than their competitors in battery?
• Elon: A lot of people made fun of us, but it turns out the pros are struggling with it.
• We have shown massive growth at the gigafactory in Nevada
• We've gotten pretty good with that
• Panasonic relationship has been excellent
• We've added LG and other partners at smaller scale
• We will talk about this on Battery Day
• We are super deep in cell
• lol
• Battery Production, 7 days a week
• Man, do we know a lot about batteries
• We do have a decade plus of cell and battery production and engineering experience at Tesla
• "We know a lot about batteries" - Elon is stoned, or just can't take these questions
• LAST QUESTION JOSEPH OSCEA JMP SECURITIES
• Cell technology question
• Maxwell tech question 
• Capacitor Dry Cell
• Elon: We will talk about this on Battery Day
• Battery Day will be lit
• Elon: It blows my mind and I know it
• Ultracap technology and important piece of the puzzle
• The call mercifully ends at 7:30 PM ET. Tesla stock is at $648.25/share. 
• Tesla's stock rose nearly $70 on the release of their earnings report, and Elon and Zach managed to not talk the stock down.
• Goodnight Cleveland.

That's all for now, but check out our 9to5 Elon podcast if you are into Tesla content.

Asif Khan

CEO/EIC/EIEIO

Asif Khan is the CEO, EIC, and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.