(Bloomberg Gadfly) -- If you're a Tesla investor who's OK with its announcement of how many cars it delivered in the last quarter of 2017, then it might be time to ask yourself: Why even read it?
Let's go through the motions of parsing the numbers. Tesla Inc. delivered almost 30,000 vehicles in the fourth quarter, the highest so far, and produced 24,565, which is actually down slightly on last year.
The overall picture is one of momentum having largely stalled since late 2016.
That this doesn't really register in the collective consciousness -- despite Tesla being a growth story -- is partly a function of the Model 3.
This vehicle is critical to the company getting anywhere close to becoming self-funding. In the meantime, it is critical to Tesla living up to its boasts of manufacturing prowess that help it raise new money from others.
On this front, Tesla didn't live up to its guidance. But what does that even mean, really?
CEO Elon Musk originally spoke of delivering 100,000 to 200,000 Model 3s in the second half of 2017. He's revised that down, in different ways, over time. By last July, he was speaking about hitting production of 5,000 a week by the end of the year. That was definitely less than the average of about 5,700 implied by the midpoint of the original range. On the other hand, the narrative had moved from absolute totals to an exit rate, so it wasn't really comparable at all. Still, the average had clearly moved a lot lower.
Come the third-quarter results call, in early November, the 5,000 figure had been pushed to the end of the first-quarter of 2018 and production was meant to be "in the thousands" by the end of the year.
Whatever that meant, Tesla didn't meet it. It produced 2,425 Model 3s in the whole quarter; 793 of them in the last seven days of it, the company says. Tesla adds, however:
In the last few days, we hit a production rate on each of our manufacturing lines that extrapolates to over 1,000 Model 3's per week. As a result of the significant growth in our production rate, we made as many Model 3's since December 9th as we did in the more than four months of Model 3 production up to that point.
I mean ... I guess that counts as disclosure. But it also bears an unfortunate resemblance to a high-school math problem (I get 1,343 Model 3s produced since December 9).
What Tesla's Numbers Resemble
A High-School Math Problem
Tesla clearly wants to emphasize that, despite 2017 production of Model 3s coming in at all of 1-to-2 percent of original guidance, it is accelerating now. But when you start getting into extrapolated run rates -- and pushing back that totemic 5,000-per-week figure by yet another quarter -- it tends to undercut the message.
The same goes for the language in which the new targets are couched, with Tesla projecting production:
Likely ending the quarter at a weekly rate of about 2,500 Model 3 vehicles. We intend to achieve the 5,000 per week milestone by the end of Q2.
The emphasis there is mine. And, yes, it might seem churlish to not allow a bit of wiggle room when a company is attempting something as ambitious as Tesla is.
But in Tesla's case, that benefit of the doubt is now long in the tooth. Tesla's intentions and likeliness of outcomes are also valued at roughly $53 billion in the stock market -- a figure that fell a mere 3 percent in overnight trading. While Tesla's shares fell below $300 in early November after reporting third-quarter results defined by a string of misses, they had recovered to $317 by the end of Wednesday.
And the new targets have a real impact for a company burning well north of $1 billion per quarter in negative free cash flow. Every delayed Model 3 is revenue that isn't coming in yet to offset the billions of dollars already put into building that hellish production line the company is trying to crank up.
Taking Tesla at its word and assuming production is hitting a 1,000-a-week run rate and that, as Musk has said, it is on an exponential curve, here's how the new and the old production ramps for the first quarter of 2018 sketch out:
Besides the obvious drop in the gradient there, it adds up to 34 percent fewer theoretical Model 3s, or just over 12,300. Assuming an average price point of $45,000, that's about $550 million in foregone revenue -- which is material for a company that's averaging about $2.7 billion a quarter. Besides absolute dollars of revenue, a slower ramp also means lower gross margins for longer until scale economics can kick in.
Of course, if that doesn't bother you, then consider yourself lucky. Not only are you untroubled by the missed targets, the periodic dilution and the growing competitive threat from other car companies, there's an added bonus: You need hardly take a minute to read a Tesla announcement at all.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.
To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.
©2018 Bloomberg L.P.
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