Tesla Q2 2019 Report: $480 Million Net Loss, but Sitting on $5 Billion

The Tesla Q2 2019 report has come out, and while Tesla has reported another loss, the automaker remains ever optimistic in regard to its future outlooks.

The Numbers

For Q2 2019, Tesla has reported a $6.349 billion in total revenue which results in a loss of $2.31 per share. This, unfortunately, has come a little short of the majority of Wall Street analysts’ predictions who were forecasting a slightly higher revenue. However, this is a notable improvement from the previous quarter where Tesla had reported a revenue of $4.541 billion and a loss of $4.10 per share.

There is a silver lining in this report as Tesla has generated $614 million of free cash flow (operating cash flow less capex) in Q2. If you combine that with the recent public offering of equity and convertible funds which resulted in $2.4 billion, then Tesla finished the quarter with nearly $5 billion in cash and cash equivalents ($4.954 billion). According to the report, this is “the highest level in Tesla’s history” given Tesla’s plans with the Shanghai factory and the beginning of Model Y production.

In regard to production numbers, Tesla states that they have achieved records for both quarterly production and deliveries that were set in Q4 2018.

• Deliveries: 95,356
  • Model 3 Deliveries: 77,634
  • Model S/X Deliveries: 17,722
• Production: 87,048
  • Model 3 Production: 72,531
  • Model S/X Production: 14,517

Finally, Tesla reports a 18.9% gross margin on their cars despite an overall decrease in their average selling price (ASP) and less revenue coming their way from regulatory credits.

Model 3

According to Tesla, the Model 3 was once again the best-selling premium vehicle in the US. It was able to outsell all of its gas-powered equivalents combined. Additionally, more than 60% of Model 3 trade-ins are from non-premium brands, meaning that the Model 3 still has some work to do in regard to converting current premium brand owners. The Model 3 is now available in all of its variants across North America, Europe, and Asia. With this much global spread, Tesla can tune into the trim and price desires of the global customer.

In regard to continued production, Tesla states that the manufacturing costs have continued to decline. The production rate of the Model 3 has been increasing and weekly production records were broken in May and June. The equipment in Fremont has demonstrated the ability to produce 7,000 Model 3s per week as Tesla continues to aim for a weekly production of 10,000 units across all its models by the end of 2019.

Model S/X

While the Model 3’s production has been ramping up quarter over quarter, the production of the Model S/X have remained steady as the two have taken a back seat to their little brother. While deliveries increased from 12,091 to 17,722 over the last quarter, the production numbers only show a slight increase (14,517 vs. 14,163) as Tesla continues to produce the S/X in a single shift schedule. Tesla has been working on inventory management to cut down on cost, and as a result, inventory levels of the Model S/X have fallen to just 18 days of sales (compared to the US average of 70 days of sales).

There is still no indication of a rumored refresh for the Model S/X.

Model Y

During the Q1 2019 earnings call, Tesla was still undecided on whether the upcoming Tesla Model Y would be initially produced in their California or Nevada factory. It has now been announced that preparations for the Model Y are being made in the Fremont, California factory. Due to the overlap in components between the Model 3 and Model Y (~60% according to Musk), Tesla is able to use a lot of existing equipment and production designs for the Model Y. Due to the overlap in existing parts and higher overall price, Tesla believes that the Model Y will be more profitable than the Model 3. The Model Y is still scheduled to go into production in Fall of 2020.

Gigafactory 3

The Shanghai Gigafactory is continuing to take shape and Tesla has already started to move machinery into the facility. The factory will feature a simplified and more cost-effective version of the Model 3 production line which will be able to produce 150,000 units per year. Given the number of electric cars that are sold in China, Tesla obviously believes that there will be no shortage of demand for the Model 3 once it starts production. The factory is on track to start production by the end of 2019.

Infrastructure

With a fleet that continues to grow, it is important that Tesla is able to keep up adequate amounts of service centers and Supercharger Stations. In Q2, Tesla added 101 vehicles to their Mobile Service fleet and have opened 25 new stores and service locations. Supercharger locations have continued to increase with now roughly 1,600 locations. Now, with the opening of Supercharger V3 locations, a single Supercharger will be able to charge more cars daily due to the decrease in charging times.

Autopilot and Full-Self Driving

With the start of production of Hardware 3, Tesla will have to work out the quirks of full self-driving (FSD) from the software side. During Q2, they were able to launch Navigate on Autopilot to both Europe and China. Currently, they are working on Enhanced Summon, which is their early access program, and the recognition of stop signs and traffic lights. Currently, the recognition of stop signs and traffic lights are being run in “shadow mode” as the car learns if it would be making the correct decisions while the driver is driving.

JB Straubel Leaving CTO Position

While this was not noted in the earnings letter, it was stated in the subsequent earnings call. During the call, it was announced that JB Straubel would be leaving his Chief Technology Officer role and step back into an advisory role. Straubel has been with Tesla from the very start and has been leading the company in projects surrounding batteries and electronics. It was mentioned that this move was not reflective on Straubel having a lack of confidence in Tesla moving forward, however, his presence in the headquarters over the past 6-8 months have been allegedly “scarce”. While he is still with the company, we will have to see if Tesla takes a hit from an engineering standpoint moving forward.

Outlook

The Q2 2019 Tesla report outlook is as follows:

Tesla believes that they have finally made it to the point where they are self-funding.

Tesla is looking to expand its production footprint with the commencement of production in the Shanghai Gigafactory at the end of 2019 and accelerating efforts towards a European Gigafactory. As previously stated, this will come before the Model Y is expected to start production in Fremont by Fall 2020.

A guidance of 360,000-400,000 vehicle deliveries this year is still held (for those keeping score, we are 158,375 deliveries through two quarters).

Finally, during the call, Musk stated that he sees Tesla breaking even in Q3, followed by a profitable Q4.

What do you guys think of the Tesla Q2 2019 earning report? Did Tesla meet or miss you expectations? Let us know down in the comments below.

Source: Tesla