Tesla Motor Releases Third Quarter 2011 Shareholder Letter

November 03, 2011 by Jeff Shepard

The following are excerpts from a letter released by Tesla Motors to its shareholders:

"We are pleased to report another quarter of strong performance. Total revenues in the third quarter were $58 million, up 85% from Q3 of last year. Automotive sales grew by almost 11% from last quarter due to solid Roadster demand and powertrain component sales. Total gross margin was 30%, our fifth consecutive quarter of achieving 30% or higher gross margin.

"The highlight of the quarter was our Model S Beta reveal. We opened the doors of our Fremont factory during the weekend of October 1st to thousands of reservation holders, media and investors. Participants rode in Model S Beta vehicles and toured the Tesla Factory. They witnessed firsthand the progress we have made in developing the Model S and our manufacturing facility.

"The Model S development program remains on schedule for first customer deliveries of the Model S no later than July 2012. In addition, we continue to have confidence in our long term target gross margin of 25% for Model S upon realizing the manufacturing efficiencies associated with an annualized sales run rate of 20,000 units.

"Our non-GAAP net loss of $0.55 per share this quarter, or $0.63 per share on a GAAP basis, reflects our continued investments in R&D and corporate infrastructure to support the launch of Model S. As we’ve discussed since our IPO, net losses will obviously continue until we reach volume sales of the Model S in 2013.

"Given the strong demand we continue to see for Tesla Roadsters and solid execution in our powertrain activities, we now project that full year revenues will be between $195 and $200 million, up from our prior guidance of $180 to $190 million. Total gross margin this quarter was 30%, down only slightly from Q2 due to lower mix and margin contribution from development services revenue. As we have mentioned in the past, timing differences between recognition of revenue and the underlying costs of development services can cause the gross margin of our development contracts to vary from quarter to quarter.

"Our operating expenses continue to reflect our investments in new vehicle development and the build-out of our infrastructure. Our total operating expenses were $82 million on a GAAP basis and $74 million on a non-GAAP basis, which excludes stock-based compensation expense. A full reconciliation between the non-GAAP and GAAP information is included at the end of this Shareholder Letter. Almost two-thirds of our operating expenses relate to our investments in research and development. R&D spending increased very slightly from last quarter, reflecting ongoing costs of developing the Model S and increased activity in preparing the Tesla Factory.Since pre-production costs are expensed under GAAP, the development activities on the Model S and Model X drive our net losses. Sales of Model S will enable us to grow our revenue very substantially starting next year and set the foundation for further growth in future years. Consequently, these continuing pre-production losses in the short term reflect our strategic decision to ramp up our business to the next level.

"Selling, general and administrative expenses also rose from last quarter driven by higher store-related and marketing activities, including the opening of new stores and hiring of support staff. We expect our operating expenses to rise slightly as we continue to prepare the Tesla Factory for production, refine the Model S, continue the advanced engineering work on Model X, and add more stores.

"Capital expenditures were about $69 million this quarter as we continued to build out the Tesla Factory and invest in tooling for Model S. We now expect our capital expenditures for 2011 to be at the lower end of our previous guidance of between $220 and $245 million. This is despite continued controlled expenditure on certain projects that we believe best serve the company by remaining confidential at this time.

"In total, our non-GAAP net loss for the quarter was almost $57 million, or $0.55 per share, reflecting 104.1 million weighted common shares outstanding. The increase from 97.8 million weighted common shares outstanding last quarter reflects an entire quarter of the incremental 8.1 million shares issued in our follow-on offering and concurrent private placements in June. We therefore expect that our share count will remain relatively stable at this level."