On Wednesday, Tesla released its fourth-quarter financial letter for 2018, and the results were pretty much as expected: the company is in the black for the second quarter in a row, albeit with a smaller profit than last quarter, despite record deliveries of vehicles. The company recorded revenues of more than $6 billion and costs of revenues at more than $5.7 billion.
After operating costs, the company posted $210 million in net income, with $139 million of that attributable to shareholders.
The fourth quarter of 2018 was an important one for Tesla’s automotive business, because it capped off a year of aggressive Model 3 production ramping just before the company’s Federal Tax Credit was retired on January 1, 2019.
Tesla has had debt on a number of convertible bonds come due in recent months, and it’s preparing for a massive, $920 million bill to come due March 1. But the car maker says that it can comfortably pay back these debts with its cash on hand. The company said it paid back a $210 million convertible bond in Q4 2018. In its shareholder letter (PDF), Tesla stated “We have sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019.”
On an earnings call Wednesday afternoon, head honcho Elon Musk said that, in 2018, Tesla captured 80 percent of the electric vehicle market share in the US.
“At this point, I’m optimistic about being profitable in Q1,” Musk said. “Not by a whole lot,” he qualified, but he said he did expect profitable quarters going forward from that.
Model 3 production
The company said it delivered 140,000 Model 3 vehicles in 2019, adding that it expects to produce 7,000 Model 3s per week at a sustained rate by the end of 2019. “Every year we make as many cars as we did in all of prior years,” Musk said on the earnings call this afternoon. “We expect deliveries this year to be 50 percent higher than last year.”
Musk said on the call that Tesla’s planned Shanghai factory is crucial for Tesla to get to the 10,000 vehicles-per-week rate for the Model 3. The company leased property from the Shanghai government last summer, and it plans to begin construction sometime this year.
Today, Tesla said it would start producing Model 3 vehicles in Shanghai in its anticipated new Gigafactory by the end of the year. Tesla’s statements reflect a speed-up from the company’s projections this past July, when a spokesperson told Ars that it would take two years to begin production at the Shanghai factory.
The Shanghai factory is expected to make its own battery modules using a combination of cells from Tesla’s Gigafactory in Nevada, as well as cells from a factory in Japan and a factory in China, Musk said.
Tesla also said it’s making progress toward producing the lower-cost edition of the Model 3 that it advertised at the vehicle’s launch. The company has been criticized for promising a low-cost electric vehicle and then delivering only “premium” versions of the car throughout the product launch.
But the company says that as it reduces cost, it gets closer to building the lower-priced vehicle. “Labor hours per Model 3 vehicle declined yet again by roughly 20 percent compared to Q3 and by about 65 percent in the second half of 2018 alone,” today’s shareholder letter noted. On the call this afternoon, Musk was vague about when the lower-cost Model 3 would be available, saying it would possibly happen sometime around the middle of 2019.
Tesla’s shareholder letter said that, this year, the company “will start tooling for Model Y to achieve volume production by the end of 2020, most likely at Gigafactory 1.”
On the earnings call, Musk elaborated a bit on how the company is approaching the new vehicle’s production. He said that the Model Y has three-quarters of its parts in common with the Model 3, which he believes will reduce cost and risk. Musk said that, by contrast, the Model X had about 30 percent of its parts in common with the Model S.
“Model X is like the Fabergé egg of cars—probably nothing like it will ever be made again, and maybe it shouldn’t,” Musk said. He added that the production line for Model Y would likely be located at the Gigafactory in Nevada in order to reduce transportation costs of batteries from Nevada to California.
Initial production of the Model Y would be very low at the beginning of next year, Musk said, perhaps hedging against the fallout that came with his ambitious projections for Model 3 production.
On the call, Musk claimed that Tesla’s “full self-driving” capabilities would be ready to roll out by then end of the year, subject only to the approval of regulators. (However, it is unclear which regulators Tesla will seek approval from.) “We already have full self-driving capability on highways,” Musk said, adding that stop-sign recognition is the next-most difficult thing and traffic light intersections are after that.
Parking lots with multiple levels are the most difficult thing for Tesla’s autonomous software, Musk said, but the “advanced summon” feature announced in previous weeks would address this. “The ‘why’ of Tesla is acceleration of sustainable energy and autonomy,” Musk said on the call. Autonomy “has the potential to save millions of lives… and give people their time back,” he said.
What wasn’t mentioned
Tesla barely discussed the Tesla Semi, and Musk stumbled trying to estimate when or where it would go into production. Musk said the Tesla pickup might be unveiled later this year, but he didn’t discuss it further.
Tesla only briefly touched on its stationary storage business, which saw a decrease in capacity deployments in Q4, although it posted year-over-year increase in capacity deployed. Musk reiterated on the call that “we would have done more in stationary storage except… we had to convert a lot of stationary storage lines” to vehicle battery lines for the Model 3.
Tesla’s shareholder letter did note that the company has “recently received multiple requests to build significantly larger battery projects” than the Hornsdale battery installation in South Australia, currently the biggest grid-connected battery in the world. Tesla did not name the parties that have reached out for larger battery projects. “The Hornsdale project has generated substantial savings and is likely to pay for itself within a few years,” Tesla’s shareholder letter says.
In addition, the Solar Roof project appears stalled or, at best, very slow moving. This time last year, Tesla said it had completed the Solar Roof’s pilot program and would roll out roofs to reservation holders. In today’s shareholder letter, Tesla wrote, “We plan to ramp up the production of Solar Roof with significantly improved manufacturing capabilities during 2019, based on the design iterations and testing underway. In the meantime, we are continuing to install Solar Roofs at a slow pace to gather further learnings from our design changes, as well as about the viability of our installation processes by implementing them in areas around the US that are experiencing inclement weather.”