Tesla’s Growth Engine Is Running on All Cylinders

Tesla (3) (640x360)

Somewhere out there, some skittish investors are kicking themselves for selling Tesla Motors (NASDAQ:TSLA) on Thursday. Shares of the electric automaker closed the regular trading session down 4.94 percent at $193.64, but the stock shot as much as 13 percent higher in post-market trading after the company reported fourth-quarter and full-year results that were better-than-expected.

Tesla delivered a record 6,892 Model S vehicles in the fourth-quarter, pulling in revenue of $610.85 million. Combined with development services revenue of $4.37 million, GAAP fourth-quarter revenue doubled to $615.22 million. Non-GAAP revenue of $761.34 million, which includes $146.13 million in Model S revenue deferred due to lease accounting, beating the consensus estimate of $686 million. Adjusted earnings came in at 33 cents per diluted share, beating the mean analyst estimate of 21 cents.

Tesla rounded out its strong quarter by reporting a gross automotive margin of 25.2 percent, beating its 25 percent target. The company closed the year with 22,477 vehicle sales for non-GAAP revenue of nearly $2.5 billion.

“As volume increases, additional economies of scale will come into play, resulting in further improvements in gross margin,” wrote Chair and CEO Elon Musk and CFO Deepak Ahuja in the company’s letter to shareholders. “We think an automotive gross margin of 28 percent, excluding potential ZEV credit sales, is a reasonable target for Q4 2014, even if a lower option take rate is assumed. Please note that Tesla is not trying to achieve the absolute highest possible gross margin, as this would require following the industry practice of charging excessive prices to customers in certain markets, which we believe is inconsistent with building long term loyalty.”

Looking forward, Tesla is expecting another year of strong growth. Model S sales are forecast to increase 55 percent in 2014 to 35,000 units, with production ramping up from 600 cars per week to 1,000 cars per week by the end of the year. “Battery cell supply will continue to constrain our production in the first half of the year, but will improve significantly in the second half of 2014,” the company commented in the shareholder letter.

The company also commented that research and development expenses will increase in the coming quarters “as design and engineering work accelerates on Model X.” Prototypes of the Model X are expected to hit the road by the end of 2014, and deliveries are expected in spring 2015. Non-GAAP R&D expenses were up 21 percent sequentially in the fourth-quarter thanks to accelerated work on the Model X.

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