Tesla Q3 earnings call lacked service details, Panasonic, margins
SpaceX owner and Tesla CEO Elon Musk gestures during a talk at the E3 Games Conference in Los Angeles, June 13, 2019.
Mike Blake | Reuters
It improved production of the Model 3 from last year, while reducing operating expenses, and made a profit that surprised investors. It said it is ahead of schedule at the Shanghai plant and production of the Model Y crossover. The news sent the stock up nearly 30% for the week.
But Tesla was silent or vague in three key issues: service, its Panasonic partnership, exactly how the company improved gross margins.
Service [1[ads1]9659007] At the last revenue talks in 2018, CEO Elon Musk said customer service would be a personal priority in 2019. But Tesla has not run the service locations to cope with the higher volume of cars it has sold and its higher number cars that age in the field.
Last year, Tesla delivered 245,240 cars to customers. The year before, it delivered over 100,000 vehicles. The company promises to deliver more than that – at least 360,000 cars – in 2019, and has already delivered around 255,000.
But Tesla stores and service centers are now number 413, according to this week's quarterly update, a real 18% increase from one year ago.
Instead, Tesla has chosen to invest in its mobile service fleet – technicians who come to the customer's car to fix what they can, wherever it is parked. The mobile service fleet has increased from 373 to 719 over the past year, a 93% shock, according to the Q3 update.
These Tesla rangers, as they were originally called, cannot fix everything. Each mobile service technician must also spend a good deal of their time transporting the customer's car. This means that they cannot complete as many jobs in one day as a team of technicians in a store.
Many customers already have to wait days, if not weeks, to have their vehicles repaired by Tesla, according to numerous CNBC interviews with customers and extensive reports. And while they wait, only some get to lend Teslas – others get a rental car or ride credit with services like Uber.
Failure to improve service could damage Tesla's reputation, as a result of consumer reports downgrading the reliability of Model 3 in February. Customers willing to pay more than $ 40,000 for a compact SUV, such as Tesla's upcoming Model Y, will expect the service to be readily available, with no long drives or waiting times.
Panasonic relationship
Tensions between Tesla and its largest partner, Panasonic, have risen again in recent quarters.
Earlier this year, Musk blamed the Japanese battery supplier for lost targets and production problems, saying "It was physically impossible to make multiple Model 3s in Q1 due to cell constraints." [19659002] Shortly thereafter, Panasonic and Tesla announced that they would freeze plans to expand battery capacity at their huge Gigafactory plant in Sparks, Nevada. In press interviews, Panasonic executives were reluctant to partner with Tesla in any similar scheme for their new Gigafactory in Shanghai.
Last quarter, Tesla bought a battery technology company called Maxwell. Subsequently, Musk announced plans for a "battery day" to show investors how much of the benefit his car company has to the electric vehicle's battery technology (it hasn't happened yet). Tesla's ambition to make its own battery cells was unveiled, along with a secret battery R&D lab, in June. And recently, Tesla bought a Canadian battery manufacturing company called Hibar.
By not discussing the Panasonic relationship during the Q3 call, Tesla left shareholders with very little visibility into whether it has secured the long-term supply of battery cells or does not expect to need to increase production in Model 3 in Shanghai.
How it improved margins
Tesla set a personal best in the third quarter of 2019 by delivering more cars than it has ever had before in a single period, but those cars had a lower average selling price than cars they sold in previous quarters. It helped push car revenue down 12% from the previous year and remains roughly flat compared to the previous quarter.
Nevertheless, Tesla managed to improve its gross car margins by a few points during the previous quarter, from 18.9% to 22.8%, approaching the 25.8% gross margins for cars they achieved at the same time in last year.
However, the company did not explain how it achieved this margin improvement.
On the revenue call, CFO Zachary Kirkhorn said revenue from Tesla's Autopilot software upgrades, including the launch of a Smart Summon feature in the third quarter, contributed $ 30 million to the bottom line. There were also other "disposable" items that contributed to profitability, but the company did not explain further.
Here is what Kirkhorn said about margins:
"We achieved these improvements through higher production volumes on the S, X and Model 3, which enable better absorption of fixed costs. We realized improvements in working hours per vehicle as well as other costs. , such as warehousing, logistics, delivery and import-related goods. We are making further progress in reducing material costs, including commercial negotiations with suppliers. "
Other details will help investors understand whether the quarterly margin improvement paves the way for sustained profitability. For example, what kind of offers did Tesla get from its suppliers? Were there discounts or more lasting discounts? How do you allow the car manufacturer to lower material costs, change suppliers or decide that some components are not needed? And if Tesla needs "fewer working hours per vehicle", does that mean that it has finally mastered robotics and automation in its factories? And how will it affect the number of employees?
Tesla gave investors a penny full of good news in a third-quarter earnings Wednesday.
Some of these details may follow from the company's quarterly earnings at the SEC, which could release at any time.
SE: CNBC's full interview with Tesla Chairman Robyn Denholm
