Tesla Motors, Inc. (TSLA - Analyst Report) reported adjusted loss (excluding one-time items other than stock-based compensation expense) of $1.01 per share in the third quarter of 2015, much wider than adjusted loss of 29 cents recorded in the year-ago quarter. Moreover, the loss was significantly wider than the Zacks Consensus Estimate of a loss of 71 cents per share. 

Tesla Motors Inc. (TSLA - Analyst Report) - Earnings Surprise | FindTheCompany

The company’s third-quarter 2015 adjusted results exclude the impact of non-cash interest expenses related to convertible notes and other borrowings of 17 cents per share, and deferred gross profit of 60 cents for Tesla’s Model S cars due to lease accounting. On the other hand, Tesla’s third-quarter 2014 adjusted results excluded the impact of non-cash interest expenses related to convertible notes and other borrowings of 15 cents per share, and deferred gross profit of 12 cents for its Model S cars due to lease accounting. Including these items, the company reported a net loss of $1.78 per share in the third quarter of 2015, compared with a net loss of 52 cents per share in the third quarter of 2014.

Adjusted revenues improved 33% to $1.24 billion in the reported quarter and steered past the Zacks Consensus Estimate of $1.21 billion. On a reported basis, revenues increased 10% to $937 million.

Tesla delivered 11,603 cars in the reported quarter, higher than the expectation of 11,532 deliveries. The company also has a higher number of vehicles in transit to support fourth-quarter deliveries. Meanwhile, Tesla manufactured 13,091 vehicles in the quarter, exceeding the projected production of 12,000 vehicles.

In the third quarter of 2015, the electric automaker directly leased 494 cars worth $45 million of aggregate transaction value. The company’s lease partners had a higher percentage of leased vehicles, thus reducing the percentage of vehicles directly leased by Tesla.

Revenues (on a reported basis) from Automotive sales rose to $853 million in the quarter from $800 million a year ago. Revenues on an adjusted basis were $1.16 billion in the reported quarter. Services and Other revenues (on a reported basis) increased 62% to $84 million from $52 million in the year-ago quarter.

Tesla’s third-quarter 2015 adjusted gross margin was 25.1%. Adjusted Automotive gross margin was 23.7% in the quarter. Third-quarter adjusted Services and Other gross margin was pegged at 9.1%.

Financial Position

Tesla had cash and cash equivalents of $1.43 billion as of Sep 30, 2015, compared with $1.91 billion as of Dec 31, 2014. Long-term debt totaled $2.61 billion as of Sep 30, 2015, compared with $2.41 billion as of Dec 31, 2014.

Cash outflow from operating activities amounted to $494.7 million in the first nine months of 2015, compared with cash inflow of $29.1 million in the year-ago period. Capital expenditures increased to $1.22 billion from $601.2 million in the first nine months of 2014.

Model 3 Update

The development of Model 3 is on track and Tesla expects to launch the vehicle in late Mar 2016.

Outlook

Production volume for the fourth quarter of 2015 is expected to be around 15,000–17,000 vehicles. The company anticipates 17,000–19,000 vehicle deliveries in the quarter. Tesla also expects to directly lease the same percentage of vehicles as it has leased out in the third quarter.

The company does not plan to sell any ZEV credits in the fourth quarter. Meanwhile, Tesla expects average vehicle sales price to increase slightly in the fourth quarter.

Automotive gross margin (excluding ZEV credits) is projected to be marginally lower than the third quarter owing to higher total production costs from initial Model X launch expenses as well as higher overhead and depreciation allocations.

In the fourth quarter, operating expenses are expected to increase marginally due to higher costs related to the expansion of Tesla’s global sales capability and development of Model 3, partially offset by lower expenses associated with Model X development. 

The company envisions capital expenditures of $500 million in the fourth quarter. The capital expenditure projection for 2015 was increased to $1.7 billion from $1.5 billion due to accelerated investments in the Gigafactory, further vertical integration of seat assembly and other manufacturing activities, as well as faster milestone execution by certain suppliers for Model X manufacturing equipment and tooling.

Moreover, revenue and gross profit are expected to increase faster than operating expenses over the next few quarters, thus leading to improving operating leverage.

For full-year 2015, Tesla lowered the higher end of its vehicle delivery guidance range to 50,000–52,000 units from 50,000–55,000 vehicles guided earlier. Meanwhile, the company expects to maintain average production and delivery rate of 1,600–1,800 vehicles per week in 2016.

Zacks Rank

Currently, Tesla carries a Zacks Rank #4 (Sell). Better-ranked automobile stocks include General Motors Company (GM - Analyst Report), American Axle & Manufacturing Holdings Inc. (AXL - Analyst Report) and Lithia Motors Inc. (LAD - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).