Tesla 2017 Quarterly Briefing
This briefing provides an overview of Tesla's performance and strategic initiatives throughout 2017, drawing information from their Q1, Q2, Q3, and Q4 update letters.
Sources: Tesla Motors – First Quarter 2017 Shareholder Letter
Tesla Motors, Inc. – Second Quarter 2017 Shareholder Letter
Tesla Motors, Inc.– Third Quarter 2017 Shareholder Letter
Tesla Motors, Inc.– Fourth Quarter & Full Year 2017 Shareholder Letter
I. Key Themes & Strategic Focus Areas
Throughout 2017, Tesla's core focus revolved around:
Model 3 Production Ramp: The year marked the crucial launch and initial ramp-up of the "even more affordable car," the Model 3, which was a central theme across all quarters.
Expansion of Infrastructure: Significant investment in expanding the global footprint of retail, delivery, service, and charging (Supercharger and Destination Charger) locations to support growing vehicle deliveries, particularly with the Model 3 launch.
Advancing Sustainable Energy: Continued integration and growth of Tesla's energy generation and storage business (Solar Roof, Powerwall, Powerpack), especially following the SolarCity acquisition.
Technological Advancement: Continuous improvement in vehicle technology (e.g., Autopilot software, battery range) and manufacturing processes.
Financial Management Amidst Growth: Navigating significant capital expenditures and operational losses while striving for profitability, particularly with the Model 3.
II. Most Important Ideas or Facts by Quarter
Q1 2017 Update (Ended March 31, 2017)
Key Highlights:
Record Performance: "Record vehicle production, deliveries and revenue in Q1." Achieved 25,051 deliveries and $2.7 billion in GAAP revenue.
Model 3 on Track: "Model 3 activities related to vehicle development, manufacturing equipment installation and supplier readiness remain on plan to start production in July." Preparations were on track to ramp to 5,000 vehicles/week in 2017 and 10,000 vehicles/week in 2018.
Autopilot Software Transition: Completed the transition to internally developed Autopilot software.
Improved Gross Margin: Automotive gross margin improved to 27.4% (GAAP) and 27.8% (non-GAAP).
Strong Cash Position: Ended Q1 with $4.0 billion cash on hand.
Infrastructure Expansion: Plans to "add nearly 100 retail, delivery and service locations globally," representing a 30% increase. This included opening first stores in Dubai and South Korea.
Service Efficiency: Remote diagnostics reduced repair times by 35% year-to-date.
Charging Network: Expected to at least double Superchargers to over 10,000 and Destination Charging connectors to over 15,000 in 2017.
Product Innovation: Received EPA certification for 335-mile range Model S 100D, setting a new record for longest-range production EV.
Solar & Storage Integration: Tested sales of solar and storage products in Tesla stores, seeing 50-100% sales productivity improvement. Pilot manufacturing of Solar Roof tiles planned for Q2 at Fremont, transitioning to Gigafactory 2.
Energy Storage Deployment: Installed 60 MWh of energy storage, including a 52 MWh project for Kauai Island Utility Cooperative (KIUC) nearing completion.
Q2 2017 Update (Ended June 30, 2017)
Key Highlights:
Model 3 Delivery Commencement: "On July 28, 2017, we started delivering the 'even more affordable car' from our original Master Plan."
Model 3 Production Targets: On track to achieve production targets. Expecting "positive Model 3 gross margin in Q4; targeting 25% margin in 2018."
Strong Model S/X Demand: Model 3 launch boosted Model S and Model X orders, with weekly net order rates about 15% higher in July than Q2 average. Expected increased Model S/X deliveries in 2H'17.
Model 3 Reservation Growth: Averaging "over 1,800 net Model 3 reservations per day" since the handover event.
Model 3 Pricing/Variants: Initial production pre-configured with long-range battery ($44,000, 310 miles range). Standard Model 3 ($35,000, 220 miles range) expected in November. Dual Motor AWD in early 2018. International deliveries late 2018.
Production Ramp Challenges (Anticipated): Acknowledged the Model 3 production ramp would "follow an S-Curve, meaning that it will begin slowly, grow exponentially, then start to tail off."
Production Targets (Revised): Confident to produce "just over 1,500 vehicles in Q3, and achieve a run rate of 5,000 vehicles per week by the end of 2017." Still planned for 10,000 vehicles/week in 2018.
Vehicle Safety: Model X received a 5-star NHTSA safety rating across all subcategories, "the first such achievement for any sport utility vehicle," and the second-best results ever behind Model S.
Retail & Service Growth: Opened 29 new store/service locations in Q2, reaching 300 globally. Continued Supercharger network expansion.
Energy Product Progress: Officially began taking Solar Roof orders and started installations at employee homes. Solar Roof certified with Class A fire rating and Class F wind rating, with a "lifetime of your house, or infinity" warranty. Energy generation and storage revenue increased 34% QoQ and 7166% YoY.
Q3 2017 Update (Ended September 30, 2017)
Key Highlights:
Milestone Achieved: "Surpassed 250,000 vehicles delivered since inception."
Record Model S/X Orders & Deliveries: "Record net orders for Model S and Model X," setting up an all-time record for deliveries in Q4. Delivered 25,915 Model S/X and 222 Model 3 vehicles.
Model 3 Demand Strong: "Demand for Model 3 is not going to be a constraint for quite a long time." Global net reservations "continued to grow significantly."
Autopilot Advancements: Significant improvements to Autosteer. Tesla AI team strengthened. Aiming for "coast-to-coast drive with no one touching the controls."
Service Expansion: Opened 18 new store/service locations (total 318). Service technician capacity increased 10% per service center. Mobile service fleet expanded to 160 units, expected to double by year-end.
Supercharger Network: Added 126 new Supercharger stations (total >1,000 stations, >7,000 connectors). Opened a 50-connector station in Shanghai. Introduced compact 72 kW city Superchargers.
Energy Storage Deployment: "Deployment of the 100 MW / 129 MWh energy storage project for South Australia is underway," on track to meet 100-day deadline. Deployed 110 MWh of energy storage systems in Q3 (12% QoQ, 138% YoY), mainly Powerwall.
Puerto Rico Support: Sent solar panels, Powerpacks, and Powerwall systems to Puerto Rico after Hurricane Maria.
Cross-Selling Success: Seeing a "growing number of Tesla vehicle customers also purchasing our energy generation and storage systems."
Financials: Cash balance of $3.5B entering Q4. Capital expenditures of $1.1 billion, primarily for Model 3 and Gigafactory 1 production ramp.
Model S/X Q4 Production Adjustment: Planned to produce "about 10% fewer Model S and Model X in Q4 compared to Q3 because of the reallocation of some of the manufacturing workforce towards Model 3 production."
Model 3 Gross Margin Outlook: Expected Model 3 non-GAAP gross margin to "reach breakeven by end of Q4," improving rapidly to 25% in 2018.
New Product Tease: Announcing Tesla Semi unveiling on November 16, 2017.
Q4 2017 Update (Ended December 31, 2017)
Key Highlights:
Model 3 Production Targets (Revised/Reaffirmed): Continued to target weekly Model 3 production rates of "2,500 by the end of Q1 and 5,000 by the end of Q2" 2018, acknowledging past forecasting difficulties but committing to addressing bottlenecks.
Model S/X Deliveries: Automotive revenue increased 36% YoY, driven by 35% growth in vehicle deliveries. Model S and X gross margin slightly declined due to fixed asset reserves.
Tesla Semi Unveiling: Unveiled the Tesla Semi on November 16, highlighting its "transformative impact due to a total cost of ownership that is superior to diesel trucks" and range up to 500 miles. Tesla will be the first customer for its own logistics.
Next-Generation Roadster Surprise: Unveiled the new Roadster, touting 0-60 mph in 1.9 seconds, max speed >250 mph, and 620 miles range, aiming to "put to rest any debate about the limitations of electric vehicles."
Energy Storage Growth: Aimed to "deploy at least three times the storage capacity we deployed in 2017" in 2018.
South Australia Project Success: "Installation of the largest battery in the world was completed ahead of schedule in South Australia" on December 1, 2017. Increased demand for Powerpack due to its success.
Powerwall Demand: "Powerwall demand for home energy storage remains exceptionally high, with orders consistently above production levels." Significant cross-selling potential with Solar Roof.
Solar Roof Production: Initial production started at Gigafactory 2 in Q4, "ahead of schedule" for hiring targets. Deliberately ramping production gradually due to complexity. Backlog expected to remain over one year.
Financials: Cash flows from operating activities significantly improved in Q4 ($509.9M vs -$300.6M in Q3). Cash balance of $3.37B at year-end. Capital expenditures were $786.7 million, continuing to focus on Model 3 and Gigafactory 1.
Gross Margin Impact: Non-GAAP automotive gross margin excluding SBC and ZEV credit declined to 13.8% in Q4 (from 18.7% in Q3), partly due to Model 3 production ramp costs and reserves for fixed assets. Expected Model S/X margins to increase in 2018.
III. Overarching Narrative of 2017
2017 was a pivotal year for Tesla, characterized by the highly anticipated launch of the Model 3, which CEO Elon Musk referred to as the "even more affordable car" from their original Master Plan. The company successfully initiated Model 3 production in July, a significant milestone that immediately impacted overall vehicle demand, even boosting orders for the Model S and Model X.
Alongside vehicle production, Tesla aggressively expanded its global infrastructure, including retail, service, delivery hubs, and its crucial Supercharger and Destination Charger networks, to support the anticipated exponential growth in its fleet. This was a direct response to customer demand and a strategic move to improve the overall ownership experience, including innovative mobile service capabilities.
The integration of SolarCity following its acquisition continued to shape Tesla's "Advancing Sustainable Energy" segment. The year saw the commencement of Solar Roof installations and a strong ramp-up in energy storage deployments, notably the completion of the world's largest battery project in South Australia, demonstrating the viability and demand for large-scale energy solutions. The company also leveraged its retail presence to cross-sell energy products to vehicle customers, validating its integrated sustainable energy vision.
Financially, 2017 was a year of substantial investment and increased operating losses as Tesla poured capital into scaling Model 3 production and expanding its global footprint. While automotive gross margins fluctuated, especially with the introduction of the lower-margin Model 3 in Q4, the company maintained targets for long-term Model 3 profitability. The year concluded with Tesla unveiling the Semi truck and the new Roadster, signaling future expansion into new product categories that align with its mission of accelerating the world's transition to sustainable energy.
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