In the second quarter of 2019, Tesla achieved record deliveries of 95,356 vehicles and record production of 87,048 vehicles, surpassing the previous quarterly records of ~91,000 deliveries and ~86,600 units produced in Q4 of 2018.
This is an important milestone as it represents rapid progress in managing global logistics and delivery operations at higher volumes. As a result of this growth and operational improvements, Tesla generated $614 million of free cash flow (operating cash flow less capex) in Q2.
Combined with the public offering of equity and convertible bonds (net proceeds of $2.4 billion), the company ended the quarter with $5.0 billion of cash and cash equivalents, the highest level in Tesla’s history. This level of liquidity puts Tesla in a comfortable position as they prepare to launch Model 3 production in China and Model Y production in the US. As a result of the strong deliveries and continued progress on cost efficiencies, the GAAP net loss declined significantly compared to Q1.
Model 3
In Q2, Model 3 deliveries reached an all-time record of 77,634. Not only was Model 3 once again the best-selling premium vehicle in the US, outselling all of its gas-powered equivalents combined, this product also gained traction in other markets. In Europe, Model 3 is approaching sales levels of established premium competitors. As Tesla stated previously, more than 60% of Model 3 trade-ins are non-premium brands, indicating a larger total addressable market for this product than initially expected. Now that all current variants of Model 3 are available across North America, Europe and Asia, Tesla is gaining insight into preferred customer trim mix.
During the quarter, a majority of orders continued to be for a long-range battery option and the Model 3 average selling price (ASP) was stable at approximately $50,000. At the same time, manufacturing costs continued to decline. The production rate of Model 3 continued to improve gradually throughout the quarter, breaking a monthly record in May and then again in June. All manufacturing equipment in Fremont has demonstrated capability of a 7,000 Model 3 vehicles per week run rate. Tesla aims to produce 10,000 total vehicles of all models per week by the end of 2019.
Model S/X
Model S and Model X production continues to run on a single shift schedule, and the Palo Alto-based automaker produced over 14,500 vehicles in Q2. Deliveries increased sequentially to 17,722 as Tesla continue to prioritize inventory reduction (working capital management). As a result, the total new car inventory levels have fallen to just 18 days of sales (including vehicles in transit, on ships and company owned vehicles), compared to the industry’s typical US inventory level of ~70 days of sales.
Model Y
Preparations for Model Y production in Fremont began in Q2. Due to a significant overlap of components between Model 3 and Model Y, Tesla is able to leverage existing manufacturing designs in the development of the Model Y production facilities. Additionally, the company is making progress managing Model Y cost with only a minimal cost premium expected over Model 3. Due to the large market size for SUVs, as well as higher ASPs, Tesla believe Model Y will be a more profitable product than the Model 3.
Autopilot and Full Self-Driving Features
The Model 3 received the highest ever ratings in the Safety Assist category of Euro NCAP’s new and more stringent testing protocols. New active safety features built on the Autopilot and Full Self-Driving (FSD) hardware and software suite contributed to this achievement. Development of new features continued in Q2 as Tesla launched Navigate on Autopilot in new regions including Europe and China. We are making progress on our next major update: Enhanced Summon, which is currently in our early access program. Tesla is making progress towards stopping at stop signs and traffic lights. This feature is currently operating in “shadow mode” in the fleet, which compares the software algorithm to real-world driver behavior across tens of millions of instances around the world.
Gigafactory Shanghai
Gigafactory Shanghai continues to take shape, and in Q2 Tesla started to move machinery into the facility for the first phase of production there. This will be a simplified, more cost-effective version of the Model 3 line with capacity of 150,000 units per year – the second generation of the Model 3 production process. Just like in the US, the Model 3 base price of RMB 328,000 is consistent with its gas-powered competitors, even before gas savings and incentives. Given Chinese customers bought well over a half million mid-sized premium sedans last year, this market poses a strong long-term opportunity for Tesla.
Tesla is looking forward to starting production in China by the end of this year. Depending on the timing of the Gigafactory Shanghai ramp, Tesla continue to target production of over 500,000 vehicles globally in the 12-month period ending June 30, 2020.
Infrastructure
In Q2, Tesla added 101 vehicles to its Mobile Service fleet and opened 25 new store and service locations. While the customer fleet size has doubled in the past 12 months, the service losses remained stable year-on-year and service wait times have improved considerably. Supercharger capacity has grown to roughly 1,600 charging locations worldwide. In addition to the number of charging locations, Tesla is also increasing the rate of throughput of vehicles. The company expect the average charging session at its powerful V3 Superchargers will drop to around 15 minutes, which will effectively double the overall throughput rate per stall compared to the V2 Superchargers, easily keeping pace with the fleet growth.
