Tesla Aims For Full-Year Profitability In 2016

Full Disclosure: I’m an investor in Tesla (TSLA). That is, I own stock in the company and don’t intend to sell it for at least 10 years. As such, I may be biased, but I have enthusiastically covered Tesla for much longer than I’ve been a shareholder and I don’t aim to move the stock price with my words. Frankly, I just write about what I find interesting and important. I think Tesla will be a long-term success for a handful of obvious reasons. I also fully support its mission. These are the reasons I’m long TSLA.

Tesla just released its Q4 2015 and full-year 2015 letter for investors, which includes numerous points of guidance for Q1 2016 and 2016 as a whole. Perhaps the most interesting highlights this time around are simply around financials. Pulling straight from the letter, here are 3–4 points I’d like to highlight as particularly positive and exciting:

  • $179 million positive core operational cash flow in Q4 2015
  • Beginning in March, expecting net cash flow positive for remainder of 2016 with ABL
  • Planning for full year 2016 non-GAAP profitability, GAAP profit in Q4 2016
Tesla Cash Flow
Image via Tesla Motors

Like Elon, I think the company’s non-GAAP accounting makes more sense (since GAAP accounting basically counts leases in an odd way), but since GAAP is so important to many in the financial/investment world, it’s particularly exciting that Tesla is aiming to achieve GAAP profitability in Q4 2016. If it is able to do so, I imagine the investment community will be thrilled.

From a practical/business standpoint, full-year non-GAAP profitability is even cooler. If Tesla achieves that, it will be a monumental milestone that goes beyond great products and demonstrates great business development and management. It would show that Tesla isn’t just making the best cars in the world, but is also doing so (while growing like bamboo) in a financially sustainable way.

As you can see in the chart above, one of the most amazing financial accomplishments Tesla recently recorded was a sharp turnaround in cash flow from core operations. Going from negative numbers in quarter after quarter, Tesla shot up to $179 million of positive cash flow in Q4 2015. I think it’s safe to say that Tesla got its financial ducks in a row, and we’re going to see the results of that play out in the coming year.

Straight from the shareholder letter, here’s more on all of this from Tesla Motors itself:

In Q4 alone, we generated $179 million of positive cash flow from our core operations defined as cash flow consumed in operations of $30 million plus cash of $209 million received from vehicle sales to our leasing partners. Growing worldwide demand for Tesla vehicles, supported by record production, allowed us to achieve this result as we increased deliveries by more than 50% from just the prior quarter.

For 2016, we are planning for even faster delivery growth than last year. We plan to be net cash flow positive and achieve non-GAAP profitability for the year, even after investing about $1.5 billion to add more production capacity, start cell production at the Gigafactory, and establish additional customer support infrastructure. Moderate GAAP profitability is expected in the fourth quarter. These investments will help prepare the way for Model 3, which is on schedule to be unveiled on March 31st and to start production and deliveries in late 2017.

On the conference call with investors, which I just listened in on, Elon noted that the company expects to see positive net cash flow starting next month.

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