Tesla Motors shares have regained some of their last value after Wednesday night’s earnings report, but Wall Street is still understandably leery about the automaker. Tesla’s losses were not as bad as expected, although sales were lower than expected, and cash burn is becoming a bigger and bigger concern.
Looking on the bright side though, it appears as if the automaker has successfully created a new revenue stream for itself in stationary energy storage. In fact, initial response to the Powerwall and Powerpack systems has been “overwhelming” according to Tesla CEO Elon Musk.
Analysts weigh in on Tesla’s earnings
JPMorgan analysts increased their price target on Tesla from $165 to $178 per share after last night’s earnings report. Although several firms adjusted their estimates for the EV manufacturer, many firms left their price targets and ratings the same. UBS analysts maintained their Neutral rating and $220 per share price target, while Stifel analysts maintained their Buy rating and ultra-bullish price target of $400 per share on Tesla.
Last night Tesla posted non-GAAP losses of 36 cents per share compared to Stifel’s estimate of 54 cents per share in losses. Revenues missed slightly, however, coming in at $1.104 billion compared to Stifel’s estimate of $1.144 million.
The automaker delivered 10,045 vehicles during the first quarter, setting a new record, and management reiterated their previous delivery target of 55,000 vehicles this year. For the second quarter though, they’re expecting between 10,000 and 12,000 deliveries, which implies between 20,000 and 21,000 deliveries in the second half of the year.
Tesla reports “crazy” response to storage systems
One bright area in Tesla’s earnings report came on the conference call when management reported fast sudden interest in the company’s stationary storage systems. CEO Elon Musk commented on last night’s earnings call, calling response to them “overwhelming, like, crazy.”
He reported that in less than a week, Tesla took 38,000 reservations for the Powerwall energy storage system and 2,500 reservations for the Powerpack, which is targeted toward utilities or big industrial companies for “heavy industrial work.”
Powerpack, Powerwall systems supply constrained
Tesla appears to be pretty good at creating new products which are so revolutionary that it just can’t keep up with early demand. Musk said that the Powerpack has at least 10 units per installation, so the reservation for 2,5000 units is actually 25,000 Powerpacks. He also said the average of the number of Powerpacks is about 1.5 to two per installation, which means that 38,000 reservations translates into 50,000 or 60,000 Powerpacks.
“So there is no way that we could possibly satisfy this demand this year,” Musk said on the conference call. “We are basically sold out through the middle of next year in the first week. It was just crazy.”
Musk said they had 2,500 requests from companies wanting to distribute and install their two stationary storage systems but that they can’t even respond to those requests.
“We have to, like, triage our response to those who want to be a distributor,” he said. “It’s crazy off the hook. It seems to have gone super-viral.”
Report about SolarCity
When Tesla unveiled the Powerpack and Powerwall systems, it revealed a partnership with SolarCity on for distribution and installation. One of the analysts on last night’s earnings call asked about the report that SolarCity said it would not use Tesla’s 7-kilowatt hour battery because it didn’t make “economic sense.” Musk answered reassured analysts that it doesn’t mean no one will buy the battery in question, emphasizing that there are two versions of the Powerall: the daily cycling one and the power back-up version.
“One is energy optimized and one is daily cycling optimized,” Musk said. For the daily cycling optimized one, the economics, it is true in the U.S., with rare exceptions, are more expensive than utility. If somebody wants to do a daily cycling, basics, they go off-grid. It’s going to be more expensive than being on-grid.”
He finished by saying that some people will buy the system because they just want to “go off grid on principle” or be independent. Tesla Chief Technical Officer JD Straubel also pointed out that they’re mainly targeting Europe with the daily cycling battery pack, and SolarCity is not yet in Europe.
Cramer: Tesla should issue bonds
So overall, Tesla’s first quarter earnings report was a mix of good and bad, with solid first quarter results and beats on most metrics, soft second quarter guidance, and extremely positive commentary on the new storage systems. But one area that’s concerning analysts is cash burn. Tesla is understandably burning through quite a lot of cash right now as it continues to ramp production, prepares to start production on the Model X, builds the gigafactory, and begins production on its energy storage systems.
During the first quarter, Tesla burned through an “eye watering” $558 million in cash, noted analyst Adam Jonas of Morgan Stanley. Jonas is a hyper-bull when it comes to Tesla, but the cash burn concerns him, especially since the company expects to burn through about the same amount of cash over the next couple of quarters. As a result, Tesla could run out of gross cash unless it borrows more. Interestingly, it seems Jonas is starting to change his opinion on Tesla’s cash problem, as he said in February that investors shouldn’t worry about it.
Tesla did draw down $78 million on a $100 million credit line it took out during the quarter, but that probably won’t be enough to cover its ambitious plans for this year. CNBC‘s Jim Cramer has a solution: “a gigantic convertible bond.” Overall though, Cramer thinks Tesla’s balance sheet problems will be “controllable” because demand for the company’s cars remains strong.