Tesla Motors (TSLA - Get Report) reported yet another quarter of missed expectations and grandiose predictions, with the company's long-term future laid out by management with more clarity than they use to describe the quarters to come. There was plenty of fodder for bears in the results, but enough hope to keep bulls along for the ride.
Fremont, Calif.-based Tesla late Wednesday reported a loss of $1.06 per share on revenue of $1.56 billion, missing analyst expectations for a 52 cent per share loss on $1.62 billion in sales. Most of the reasons for the miss had been telegraphed to investors in the weeks leading up to the report, leaving the shares off just 1% at open Thursday morning.
The company at a glance appears to be moving in the wrong direction. Tesla on a GAAP-basis lost more than $20,000 per vehicle sold in the second quarter, nearly double the per car GAAP loss recorded in late 2014 despite selling nearly 50% more vehicles. The company's squeeze figures to increase in the quarters to come, as Tesla has introduced lower-cost (but not obviously less expensive to build) versions of its Model S and hopes to roll out its $35,000 Model 3 next year.
But the losses, for now, were expected and seemingly are acceptable to bulls as the company endeavors to refine its manufacturing technique ahead of the Model 3 rollout. Tesla in the years to come intends to avoid a margin squeeze by making its manufacturing operation far more efficient, building what CEO Elon Musk during a conference call with investors Wednesday night termed an "alien dreadnought" of machines that build the vehicles.
The exec admitted Tesla is in the early days of its plan, with "version 0.5" expected when the Model 3 begins production, but said he hopes in the years to come to create a factory that looks like "a giant chip pick-and-place machine or a super high-speed bottling or canning plant, and you really can't have people in the production line itself."
There were reasons for concern about the third quarter contained in the release. Tesla reiterated its goal of producing 50,000 vehicles in the second half, but broke with previous tradition and did not offer any delivery guidance for the third quarter. Second quarter guidance fell short of expectations, though Tesla insists that was partially due to delivery quirks and a large number of vehicles in transit as the calendar turned.
Tesla execs also gave no update on the number of Model 3 reservations currently on the books, a number the company trumpeted earlier this year as the order book swelled to 373,000 refundable deposits. There have been market rumors of late that the number has since fallen, perhaps due in part to Tesla selling currently available Model S units to depositors, but company CFO Jason S. Wheeler on the call cryptically would only refer to the 373,000 number from May, saying "we're sticking to that number in terms of disclosure."
Such terminology could mean nothing, and could even show a welcomed level of maturity concerning disclosures relative to Tesla's habit of updating numbers via Twitter at seemingly random intervals. But it is also the sort of verbiage that critics of the company find maddening.
The quarter also did little to quell concern that the Model 3 rollout will not occur in 2017 as scheduled, with attention focused on capex spending year-to-date. Tesla said in April as part of its accelerated Model 3 production schedule that it would spend $2.25 billion to speed development of its factory and get the production line ready, however, the company spent just $217 million in the first quarter and $295 million in the second.
That would imply either a huge ramp up in expenses in the second half, or that the company is behind schedule. With money-losing and deeply-indebted SolarCity (SCTY) about to come on board, there is reason to speculate Tesla might be keeping its powder dry and slowing investment in its auto business to make sure it has the cash on hand to handle any shortfall at the expanding enterprise.
CFO Wheeler, on the call with analysts, offered a third explanation, saying Tesla's capex spending so far this year is low due to what he calls "volumetric efficiency." He says that Tesla is discovering opportunities to increase production using its existing footprint, avoiding costly expansion expenses, saying "I think we can beat" the $2.25 billion guidance but offering no updated number.
"I think we're making an attempt to crush the conventional wisdom that capacity increases only happen in step change increments and the capital that follows that in step change increments as well," Wheeler said. "And to put a little bit more color on that, there are many ways to optimize our current operations."
There might be no better way of describing Tesla in 2016 than calling it "an attempt to crush the conventional wisdom," and if the company succeeds in selling millions of Model 3s made by robots at a profit in the years to come no one will remember the crummy margins and missed expectations of the latest quarter.
But as always with Tesla, the payout is a long way down the road and getting there is substantially easier said than done. Investors are entitled to dream about the future and believe Musk and his team will reach their ambitious goals. Just as long as they understand how difficult - and risky - creating a functioning alien dreadnought will be.