3 Biggest Takeaways From Tesla's First-Quarter Earnings

 

NEW YORK (TheStreet) -- Tesla Motors (TSLA) may have gotten production issues under control, helping the company in the long term. But investors are likely to be concerned about quarterly fluctuations in delivery and cash burn in the short term.

For the first quarter, Tesla lost 36 cents a share on $1.1 billion, as it produced 11,160 Model S units during the quarter, 10% better than previously forecast. Analysts surveyed by Thomson Reuters expected the company to post a first-quarter loss of 50 cents a share on revenue of $1.04 billion.

Gross margin, a closely watched level for the premium automaker, came in at 28.2% on an adjusted basis and 27.7% using generally accepted accounting principles, as the company continues to work on improving cost efficiencies.

Tesla had $426 million in capital expenditures during the quarter, leaving it with $1.51 billion at the end of the quarter. It's likely the company will have to raise additional capital in the coming months, Morgan Stanley analyst Adam Jonas said. The company could exhaust all of its cash in the next three quarters, with a best case scenario being that it burns through $1 billion. he added.

"In any case, we believe Tesla may find a capital intervention desirable if not absolutely necessary," Jonas wrote.

Tesla said that the Model X, its upcoming SUV, is slated to be released in the latter part of the third quarter, presumably September. CEO Elon Musk also said the company may unveil its mass market car, the Model 3, as soon as March 2016 and remains on track to deliver the car to customers toward the latter part of 2017.

Shares were lower in early Thursday trading, falling 3.4% to $222.50 after having traded higher on Wednesday following the earnings news.

Here are the three biggest takeaways from the quarter.

Operations Are Getting Better, but It's Still a Work in Progress

Tesla has always said that it is not demand constrained but rather supply constrained, which has hurt some quarterly numbers in the past, but it appears those problems are starting to end.

Production levels are getting better, as the company produced more cars in the quarter than it previously forecast, thanks to operational efficiencies. It produced more than 1,000 cars a week, up from around 750 a week as of June 2014. The company also reportedly made its first acquisition, with The Detroit Free Press reporting it has acquired Riviera Tool, a stamping company.

Tesla said it would produce about 12,500 vehicles in the second quarter, representing a 12% sequential increase, as the company continues to work on improving production.

The Model X is likely to be a beneficiary of these improvements, with the SUV slated toward the latter part of the third quarter.

"Based on [management's] commentary about the cadence of production, we believe that Model X could ramp up more steeply than we previously thought (likely in the 5-10k unit range this year, vs. previous est's of ~5k)," Deutsche Bank analyst Rod Lache wrote in a research note.

Despite the operational efficiencies Tesla has realized, the company is not out of the woods yet. Credit Suisse analyst Dan Galves said second-quarter deliveries are likely to be lower than forecast, with deliveries expected to be between 10,000 and 11,000, vs. a 12,000 estimate.

It's likely that Tesla will continue working the kinks out, but it will continue to have some hiccups along the way.

I Have the Power

Tesla's recent energy storage announcement has not just captured the attention of the media and Wall Street -- there's a significant business opportunity there for the company.

On the earnings call, Musk said the company is essentially sold out through the middle of next year for the Powerpack (for utilities) and the Powerwall (for residences).

"The response has been overwhelming, OK, like crazy," Musk said. "In the course of like less than a week, we've had 38,000 reservations for the Powerwall, 2,500 reservations for Powerpack."

Credit Suisse's Galves said Tesla likely was able to book around $800 million in revenue from the storage battery business in just one week, compared with $1 billion in automotive revenue.

"We've  put  about  $100MM  of  revenue  into  our  model  through  2016,  but this  seems  massively  conservative  since  mgmt.  noted  that  they  are  sold  out  through "middle  of  2016," Galves wrote in a note.

Deflategate

Although this term has been used for Tom Brady and the New England Patriots in recent weeks (as a Patriots fan, it pains me to write that), it can be applied to short-term expectations on Tesla, given some curious comments from Musk on the conference call.

He said Tesla has been scrambling at the end of each quarter to make numbers but the company is no longer going to do that, since it doesn't provide a good customer experience and is not "the right thing for the company."

This means Tesla will be "operating more for sort of steady-state efficiency, and that means the quarterly fluctuations could be a little higher, but in the long term, it will be better," Musk said.

Must Read: Tesla Earnings Live Blog -- Can Elon Musk Keep the Momentum Going?

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