Q3 2019 Investor Letter

Source: https://ir.tesla.com/static-files/47313d21-3cac-4f69-9497-d161bce15da4

This month they changed the format to a PPT format. So I am posting as much text here as I can.

Release Text:

HIGHLIGHTS

Cash

$383M increase in our cash and cash equivalents balance to $5.3B
$371M operating cash flow less capex (free cash flow)

Profitability
$261M GAAP operating income; 4.1% operating margin$143M GAAP net income;
$342M non-GAAP net income ex-SBC
22.8% GAAP Automotive Gross Margin


Operations
Gigafactory Shanghai ahead of schedule, trial production started Model Y ahead of schedule, production expected by summer 2020Record vehicle production of 96k and deliveries of 97kRecord storage deployment of 477 MWh and 48% solar growth QoQ

SUMMARY

Last year, our story wasabout ramping the Model 3.While total volumes are expected to grow by approximately 50% in2019, this year our focus has beencost controland preparing for our next phase of growth.
Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened. Additionally, operating expenses are at the lowest level since Model 3 production started. As a result, we returned to GAAP profitability in Q3 while generating positive free cash flow.This was possible by removing substantial cost from our business.
We have also dramatically improved the pace of execution and capital efficiency of new production lines. Gigafactory Shanghai was built in 10 months and is ready for production, while it was~65% less expensive (capex per unit ofcapacity) to build than our Model 3 production system in the US.Continued volume growth and cost control are an important combination for achieving sustained, industry-leading profitability

FINANCIAL SUMMARY

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FINANCIAL SUMMARY

Revenue
Compared to Q3 of 2018, the percentage of leased vehicles has tripled and alone has impacted revenue by the majority of the YoY decrease.Model 3 mix has increased while we have taken actions leading to the reduction of the ASP of our products.These ASP reductions are particularly impacted by the launch of the Standard Range trims of Model 3 and pricing actions earlier in the year.
We are positioned to accelerate our growth further through Gigafactory Shanghai, Model Y and also through increasing build rates on our existing production lines.These capacity increases will allow for higher total vehicle deliveries and associated revenue.We also expect to gradually release nearly $500M of accumulated deferred revenue tied to Autopilot and Full Self Driving features.

Profitability
GAAP Automotive gross margin improved by 393bp QoQ to 22.8% (improved by 366bp QoQ excluding regulatory credits) Margin was impacted in part due to fundamental improvements in our operating efficiency, including higher fixed cost absorption, reductions in manufacturing and material costs and continued improvements in vehicle quality and in part due to Smart Summon-related deferred revenue recognition, FX and other non-recurring items.Improved gross profit combined with a decline in operating expenses resulted in material improvement of GAAP net income.

Cash
Quarter end cash and cash equivalents increased to $5.3B, driven by positive free cash flow of $371M.Note that operating cash flows are negatively impacted by increased automotive leasing mix.Draws against our working capital facilities, including leases awaiting securitization, are included in financing cash flows.Capex increased sequentially due to investments in Gigafactory Shanghai and Model Y preparations in Fremont.

OPERATIONAL SUMMARY
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VEHICLE CAPACITY

Fremont
Model Y equipment installation is underway in advance of the planned launch next year.We are moving faster than initially planned, using learnings and efficiencies gained from our Gigafactory Shanghai factory design.
Capex per unit of capacity is forecasted to be about 50% lower than our current Model 3 production system in the United States.

Shanghai
We are already producing full vehicles on a trial basis, from body, to paint and to general assembly, at Gigafactory Shanghai.We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai.
China is by far the largest market for mid-sized premium sedans.With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), we believe China could become the biggest market for Model 3.

Europe
We are in the final stages of our site selection process.Our European Gigafactory is expected to produce both Model 3 and Model Y.

Autopilot & Full Self Driving
In September, we launched Smart Summon in the US which has been used more than one million times to date. This functionality allows car owners to summon their cars from up to 200 feet in a parking lot or driveway. Our neural network learning approach enables us to continue to iterate and improve functionality over time.
During Q3, we registered one accident for every 4.34 million miles driven in which drivers had Autopilot engaged.This compares to the national average of one accident for every 0.5 million miles based on NHTSA’s most recent US data.

Vehicle Software
In September, we released our latest and most significant vehicle software update yet, called V10.This update introduced streaming video (i.e.,YouTube, Netflix, Hulu, video tutorials), Spotify, Caraoke(i.e., in-car karaoke), additional games, improved search and other functionalities.This version of our infotainment system continues to lead the industry and lays an important foundation for things to come.

Powertrain
In addition to launching longer-range versions of the Model S and Model X in April, we have been able to increase the EPA range of the Model 3 Standard Range Plus from 240 miles to 250 miles.We accomplished these improvements by more efficient energy use rather than a costly increase to the battery size.
Our current shortest-range vehicle is on parity with the longest-range production EVs offered by other companies. Long-range models of each Model S, X and 3 continue to have 20-40% higher range than any other EV available.V10 software update with Smart SummonEPA range in miles* EPA and Tesla estimates based on WLTP

OTHER HIGHLIGHTS
Energy
Energy storage deployment reached an all-time high of 477 MWh in Q3.Additionally, we have recently introduced Tesla Megapack a3 MWh battery pack, pre-assembled at the Gigafactory as a single unit.Such packaging allows for faster deployment and lower overall installation cost.First deliveries are planned to begin in Q4 2019.
We also launched a commercial solar configurator for small and medium enterprises, with standardizedand transparent pricing.Solar deployments have started to grow sequentially once again.In Q3, we deployed 43 MW of solar, 48% more than in the prior quarter.

Tesla Insurance
In August, we launched Tesla Insurance for California customers, enabling many customers to reduce insurance costs by up to20-30%. This total cost of ownership approach is an important step to make our cars more affordable.Since launching this product, we have seen strong interest from our new and existing customers in California and are working to expand insurance into additional markets.

OUTLOOK

Vehicle Deliveries
Deliveries should increase sequentially and annually, with some expected fluctuations from seasonality. We are highly confident in exceeding 360,000 deliveries this year.

Cash Flow
Positive quarterly free cash flow going forward, with possible temporary exceptions, particularly around the launch and ramp of new products. We continue to believe our business has grown to the point of being self-funding.

Profitability
Positive GAAP net income going forward, with possible temporary exceptions, particularly around the launch and ramp of new products.Continuous volume growth, capacity expansion, and cash generation remain the main focus.

Product
Trial production of Model 3 in Shanghai has begun, ahead of schedule. We are also ahead of schedule to produce Model Y and now expect to launch by summer 2020.We are planning to produce limited volumes of Tesla Semi in 2020 and are hoping to announce soon the location of our European Gigafactory for production in 2021.

Q3 2019 Production Press Release

Source: https://ir.tesla.com/news-releases/news-release-details/tesla-q3-2019-vehicle-production-deliveries