Coronavirus set to slow down Tesla production after profitable Q4

30 Jan 2020396 Views

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In its Q4 2019 earnings report, Tesla shared an optimistic outlook for the year ahead, but warned that the coronavirus outbreak in China could delay production.

On Wednesday (29 January), Tesla published its 2019 Q4 earnings report, showing that revenue increased by 2pc to $7.4bn, compared to $7.02bn a year ago.

Tesla stock surged by 12pc after the company announced that Model Y production began this month, ahead of schedule. The company said that it has also “broken ground” on the next phase of its Gigafactory in Shanghai.

In its earnings report, the company said: “2019 was a turning point for Tesla. We demonstrated strong organic demand for Model 3, returned to GAAP profitability and generated $1.1bn of free cash flow for the year. We achieved strong cash generation through persistent cost control across the business.”

Expectations for 2020

Tesla expects a healthy volume of sales this year, with the company saying that “vehicle deliveries should comfortably exceed 500,000 units”, and that production should outpace deliveries this year.

It added that solar and storage deployments should grow by at least 50pc in 2020. In Q4, Tesla’s energy storage deployment reached an all-time high of 530MWh in Q4, which included the first deployments of  the company’s new commercial scale 3MWh integrated storage system, Megapack.

The company said that the level of interest and orders for the Megapack, from various global project developers, has “surpassed expectations”.

“We expect positive quarterly cash flow going forward, with possible temporary exceptions, particularly around the launch and ramp of new products,” it added.

Tesla said it will rely on China and Model Y for revenue growth in the coming year, as the profit margin of its Model X and Model S sales decrease. During Q4 2019, Tesla delivered 19,475 Model S and Model X vehicles, which is a 29pc decline from the year before.

Increased focus on batteries

Tesla CEO Elon Musk was asked if the company plans to raise capital while it has strong momentum to pay off debts or accelerate production.

“We’re spending money as quickly as we can spend it sensibly. We are not artificially limiting our progress,” Musk said.

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“Despite all that, we are still generating positive cash. In light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”

However, there are some significant costs ahead, with the company set to build a new factory in Berlin and kick off production there by the end of 2021. Additionally, Tesla is still expanding its operations in Shanghai and its supply chains in China. Then, of course, there is the Cybertruck, which the company plans to produce soon, as well as its proposed Plaid powertrain.

The more electric vehicles Tesla aims to produce, the more batteries it is going to need. Musk said the priority right now is increasing battery capacity and lowering the cost of battery production.

“If you don’t improve that, you end up shifting unit volume from one part to another and you haven’t actually produced more electric vehicles. That’s one reason we have not accelerated production of the Tesla Semi. Because it does use a lot of cells,” Musk said.

“Unless we have got those cells available, then accelerating production of the Semi would mean making fewer Model 3 or other cars.”

The company is planning a ‘Battery Day’ presentation for investors this April.

Shanghai shutdown

The same day that Tesla’s earnings were announced, it also emerged that the company would have to temporarily shut down its Shanghai factory, as part of a broader order from the Chinese government that aims to prevent the spread of coronavirus in the region.

Tesla’s chief financial officer, Zach Kirkhorn, said that this temporary shutdown will delay Model 3 production by just under two weeks and may affect the company’s profits for Q1 2020. The factory will be required to close until 9 February.

Apple and Google also announced that business has been disrupted by the outbreak of the contagious virus, which Apple CEO Tim Cook said has already impacted the company’s suppliers.

The situation has resulted in the closure of some Apple Stores in China. Cook said: “The situation is emerging and we’re still gathering lots of data points and monitoring it very closely.”

Google announced on 29 January that it was shutting down all of its offices in mainland China, as well as offices in Hong Kong and Taiwan, as a temporary measure to prevent the spread of the coronavirus.

Kelly Earley is a journalist with Siliconrepublic.com

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