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Tesla recorded a positive GAAP net income for the first time in its history in Q1, despite hampered operations and sales during the first quarter, a seasonally weak period. It was also able to achieve the best quarter for deliveries and production.
First quarter was impacted by the temporary suspension of deliveries and production across numerous locations. At Gigafactory Shanghai, the margins improved for Model 3 as a result of volume growth.
With Model Y contributing profits, it was the first time in the company’s history that a new product has been profitable in its first quarter. Management remains confident in escalating global production while continuing to invest in production technologies and localised manufacturing.
The company is managing working capital and spending diligently with optimised non-critical costs and emphasis on productivity gains. Management believes that the business is well positioned to achieve long-term plans while also managing near-term uncertainties.
Fremont, US
In Q1, the plant started production of Model Y through the new production line and shared capacity with Model 3. Its new approach to production is yielding better results, as the plant was able to manufacture more units of Model Y in Q1 compared to the first two-quarters of unit production of Model 3 in 2017.
Even in Shanghai, the production of Model Y exceeded the production of Model 3 in first quarter, reflecting improvements in program execution. Besides, the company achieved a positive gross margin for Model Y in its first quarter of production.
Shanghai, China
Its Shanghai production facility is moving according to the plan. As a result of better than expected progress, the company believes Model 3 would hit the production rate of around 4k/week by mid-2020.
During the first quarter, the facility only manufactured Standard Range Plus version of Model 3. In April, the company opened online configurator for a Long Range version as well as for a Performance version. Until now, the company has been able to secure component supply to continue with production at the facility.
Berlin-Brandenburg, Germany
Tesla, which recently completed land preparation phase, is moving to break ground for the construction phase of the project. As of the now, the company is positioned to start first Model Y deliveries from the plant in 2021.
Energy business
Tesla’s Megapack is gaining traction, which is a 3MWh battery pack made in Nevada. As a result of its cost optimising value, the business is experiencing an inflection point in demand for utility level storage. At this time, the demand for Megapack continues to be higher than the capacity.
Energy business is also witnessing great traction, reflected by a growing order book, which has even larger projects than the current largest Li-on battery in the world - Hornsdale battery in South Australia.
During the first quarter, the company installed 100,000th Powerwall. Over 40% of the company’s residential solar customers opted for at least one Powerwall, indicating that the business is successfully cross-selling products.
Solar Roof
During the quarter, the Gigafactory New York achieved a significant milestone, as Solar Roof production exceeded 4MW, in a single week, enough for up to 1k homes. Tesla noted new installers would continue to onboard for production and installing of Solar Roofs.
Financials
In Q1, the company recorded a 32% growth in total revenues on a y-o-y basis. Its total revenue was down 19% sequentially, primarily due to seasonally slow first quarter, with lower deliveries due to lockdowns. The company also registered a decline in average selling price, as per expectations, which was materialised as the mix is shifting to more affordable Model 3 and Y from Model S and X.
Tesla achieved a gross margin of 25.5% in the automotive segment and total gross margin of 20.6%, both margins reached to the highest levels in eighteen months consequently.
By the end of the quarter, the company was carrying cash of USD 8.1 billion, which increased by USD 1.8 billion on a quarterly basis. An increase in cash balance was primarily attributed to a capital raise of USD 2.3 billion, which was offset by negative free cash flow of USD 895 million.
A sequential inventory growth impacted operating cash flow by USD 981 million, primarily due to interruptions of operations at the end of the quarter. Investments in Model Y preparation increased the company’s capital expenditure.
Outlook
Tesla would provide an update on guidance for the year 2020 in the second quarter, given great uncertainty on the return of vehicle manufacturing and allied global supply chain to previous levels.
The company has the capacity to deliver 500k vehicles this year, after considering the announced production interruptions. In the US, it is uncertain on its resumption of operations as well as suppliers.
Given the sufficient liquidity, the company continues to invest in long-term plans, and Model Y production in Berlin and Shanghai remains its top priority. It also anticipates delivering industry leading operating margins and profitability.
Tesla anticipates that production of Model Y and Model 3 in Fremont and Shanghai, respectively – would continue to improve through the second quarter.
The company continues to build capacity for Model Y in Shanghai and Berlin with deliveries expected in 2021. Meanwhile, the company has pushed Semi deliveries to 2021.
