Tesla has profitable fourth quarter, but loses $775M in 2019
Tesla Inc. lost $775 million in 2019, a 27% improvement from the year prior, after it sold a record number of vehicles.
The Silicon Valley electric-car maker delivered a record of about 112,000 vehicles in the fourth quarter and about 367,500 for the full year, meeting the low-end of the guidance it had established earlier in 2019 of 360,000 to 400,000 units worldwide.
In an update to shareholders Wednesday, Tesla said it lost $4.92 per diluted share on $24.56 billion in revenue for the year, a 15% rise from 2018. The fourth quarter's $132 million in net income, despite a 37% year-over-year decrease, boosted annual results.
Investors responded positively to the results as share prices rose more than 12% in after-hours trading, surpassing record-highs achieved last week. The stock price had more than doubled in the past three months and became the first publicly listed U.S. automaker to pass $100 billion in market valuation — ahead of Ford Motor Co. and General Motors Co. combined.
"It's hard to think of another vehicle that can more than $20 billion revenue with $0 advertising spent," Tesla CEO Elon Musk said of the company's Model 3 sedan on a conference call. "That high of demand for an EV with no advertising-spend is quite remarkable. It speaks to the nature of the car itself that it is compelling enough to have that demand."
The company expects deliveries will exceed 500,000 units in 2020 because of production beginning in its new plant in China and the launch of its Model Y crossover.
Tesla posted in the third quarter a surprising profit, building expectations that the company could more consistently be profitable. The automaker has lost money in most quarters during its first decade as a publicly held company.
Model 3s accounted for 83% of its sales for the final three months of the year. The cars cost less than half of the lowest-priced Model S luxury car and Model X SUV, which represent the other sales.
Tesla reported pre-tax earnings in the fourth quarter of $174 million, down 25% year-over-year. Revenue was up 2.2% to $7.38 billion, with a flat $6.37 billion coming from its automotive division. It produced nearly 105,000 vehicles in the final three months of the year.
The automaker's operating expenses were a flat $1.03 billion in the fourth quarter. Operating income was $359 million for a 4.9% operating margin. Tesla reported it has $4.96 billion in cash, up 34% year-over-year.
In the fourth quarter, Tesla's Shanghai "Gigafactory 3" plant in China began production. It made only 1,000 cars for sale, though the company expects to produce more than 3,000 vehicles per week there.
"Tesla’s China Gigafactory ramp, we believe, will display to the world that EVs can be profitable if made at high volume with the right factory design in the right geography," Adam Jonas, Morgan Stanley analyst, wrote in a note to investors. "If Tesla proves to be profitable (as it is now widely expected to be), we think this removes one of the biggest impediments for why legacy OEMs were hesitant to go ‘all in’ on EVs."
But its opening comes with poor timing as sales in the world's largest vehicle market fell for a second consecutive year in 2019. Ford and GM saw double-digit declines there in the fourth quarter. The Chinese government last year also reduced subsidies for electric vehicles.
And the coronavirus outbreak has led to a government-required shutdown that will cause delivery delays of at least a week, said Zachary Kirkhorn, Tesla's chief financial officer. Parts going to its Fremont, California, plant also could be affected.
The Palo Alto, California-based company also is expanding its manufacturing footprint into Europe. The plant outside of Berlin is expected to begin production in 2021.
In addition to the Model 3, the new plants and its Fremont factory will produce the Model Y crossover, which Musk said last quarter would begin to be delivered this summer ahead of the previously recognized fall date; production ramp-up for the Model Y in Fremont has begun with initial deliveries expected by the end of the first quarter, the company said Wednesday. Tesla has said the vehicle will produce greater margins than the less-expensive Model 3, though will be less expensive than luxury competitors.
Tesla also recently unveiled its cybertruck, and limited production of a semi-truck is planned for this year. An insufficient supply of batteries is holding the company back from introducing more vehicles, Musk said. A roadster also is in development.
“The Model 3 has proved that Tesla can mass produce a vehicle and bring real volume to the electric market, but the following act is the most important," Jessica Caldwell, executive director of insights at auto listing website Edmunds.com Inc., said in a statement. "The Model Y’s design might not have broken the internet like the Cybertruck did during its unveil, but with its competitive pricing and range, it has the potential to be Tesla’s best-selling vehicle and is paramount to the company’s long term success.”
The carmaker missed an end-of-year deadline to begin rolling out its full self-driving "feature complete" technology under its "Autopilot" platform. Musk has described the update as the vehicle being able to drive from home to work "likely without interventions." The company said it is validating its self-driving computer's ability to recognize lane markings, traffic lights and other vehicles.
"We got pretty close" to a 2019 rollout, Musk said. "It's looking like we might be feature-complete in a few months."
Tesla this month also notched an agreement with the state of Michigan that will allow it to deliver vehicles in the state to buyers, though they first must be titled elsewhere. The company also can open service centers through a new subsidiary, Plymouth-based Tesla Michigan Inc. Michigan residents previously had to go out-of-state to pick up their Tesla or get it fixed, or wait for months to have a mobile unit provide a house call.
Emailed inquiries to Tesla's press office did not respond with when service centers soon could be appearing in the state.
"We actually are spending money as quickly as we can spend it sensibly," Musk said Wednesday. "Anywhere we can see good value for our money, the answer is yes."