Barclays Capital analyst Brian A. Johnson rates Tesla Motors Inc (NASDAQ:TSLA) as Neutral as the company will announce 4Q13 earnings today.
Tesla Motors Inc (NASDAQ:TSLA) is scheduled to release 4Q’13 earnings after the market closes today and will host a webcast at 5:30 PM ET to discuss the results.
Pro-forma estimate of 26c using updated delivery guidance
Our published 4Q EPS estimate for Tesla Motors Inc (NASDAQ:TSLA) of 11c is below consensus of 21c. However, note that our estimate, and that of some other analysts, does not reflect Tesla’s updated guidance for 4Q deliveries of 6,900 units (vs. the original guidance of “just under 6,000 units”). Using 6,900 units, our pro-forma EPS estimate would be 26c. Indeed, updated guidance for 6,900 units did not come as a surprise, as we found in our Tesla factory tour in early December that at that point Tesla was already at a production pace of 600 units/week (implying production of ~7k units in 4Q).
There may also be upside to gross margin guidance – we estimate gross margin of 26%, above guidance of 25%. However, recall that Tesla noted in its 3Q print that further progress is likely if vehicles are purchased with high option take rates.
2014 guidance to be focused on deliveries and production
We expect 2014 guidance to be released in the print, with the focus to be on deliveries. We currently model 2014 deliveries of 29.8k (largely consisting of Model S, with only a nominal 100 Model X deliveries), up from modified 2013 Model S delivery guidance of 22.4k. However, upside exists to our estimate. Recall that TSLA noted in its 2Q’13 print that it expects to reach a run-rate of 40k deliveries by late 2014, assuming NA and Europe demand is matched by similar demand in Asia. Assuming Tesla continues to ramp up the pace of deliveries from the 6,900 achieved in 4Q, we could see upside to ~32k units for 2014. However, we believe that investors with expectations for guidance of 35k+ units will be disappointed, as we expect Tesla to assume some conservatism in its guidance given the increased international component in its delivery guidance. Moreover, given production remains the key constraint for Tesla (as noted below), we will look for color on when the company expects to begin spurring demand (i.e. increased advertising, expansion of sales network).
Further, we caution investors not to look for guidance of a large sequential step-up in deliveries in 1Q. Although some may extrapolate that 1Q deliveries could be up significantly over the 6,900 achieved in 4Q, we believe Tesla is more likely to guide to a delivery figure in the low 7k range (up modestly sequentially), which takes into account the delivery lags for China and Europe.
Similarly, we expect commentary around the pace of production. As noted above, Tesla Motors Inc (NASDAQ:TSLA) was producing the Model S at a pace of 600 units/week in early December. The company has already guided to be at a pace of 800 units/week by the end of 2014, with a ramp-up in pace expected in 2H once Panasonic is fully ramped in battery production. We will look for commentary on the progression of the production pace to 800 units/week over the course of the year, and whether there is upside beyond 800. We also expect commentary on the production pace for Model X, which we expect to begin in 2H.
Finally, we will look for commentary on margin progression. Although we currently model gross margin of 26.7% in 2014 (largely flat over 2013), we expect guidance for some progression in operating margin (we currently estimate ’14 adj. EBIT margin of 4.3%, up from 3.3% in ’13). We expect increased efficiencies to be somewhat offset by higher SG&A spend as the company continues its expansion.
Gen III remains a crucial topic
We also expect additional color on the roll-out of Gen III. Although battery production for Gen III remains the key question for investors, we don’t expect an announcement around a giga-factory on the call. Rather, as we noted after our tour of the Tesla factory, an announcement would be more likely in early 2015. Similarly, while the question of Gen III success continues to revolve around battery cost, we don’t expect management to provide much color on the evolution of battery cost.
Tesla earnings analyzer
We are pleased to include the Barclays U.S. Autos and Auto Parts earnings analyzer, a formal worksheet to help investors analyze Tesla Motors Inc (NASDAQ:TSLA)’s results by measuring the variance between our estimates and consensus.
