It's Showtime for Tesla Motors

Tesla Motors (Nasdaq: TSLA  ) reported a loss of $88.9 million on Wednesday after market close. At $0.76 a share, excluding some special items, that was a significant jump from a loss of $0.44 in the year-ago period.

It was also a bit more than the $0.70 loss expected by analysts, as Tesla's revenue dropped 38% from the year-ago quarter.

But, despite missing estimates, the stock opened way up on Thursday -- for very good reasons.

Losses? Who cares? Here's the good news
There's actually quite a bit of good news, as Tesla CEO Elon Musk confirmed that the company continues to execute well on all corners of its business plan:

  • Model S is on schedule: Tesla's first mass-produced car, the Model S sedan, is on schedule with deliveries expected to begin in June. Actually, that's a little ahead of schedule, as Tesla has long said that it expected to deliver the first cars in July. This is a big deal: The Model S is the product that is expected to carry the company to profitability, and Tesla's success in delivering it on time says a lot about the company's ability to execute.
  • Demand continues to be strong: Musk said in a letter to shareholders that the company now has over 10,000 "reservations" -- its term for orders accompanied by a deposit -- for the Model S. It also has about a thousand reservations for the Model X, an SUV that isn't due for over a year. Model S sales are expected to accelerate later this year: Once production models start arriving at the company's stores, potential customers will be able to take test drives in the Model S, something that hasn't been possible to date.
  • Powertrain business continues to develop: Tesla developed the powertrain for Toyota's (NYSE: TM  ) new all-electric RAV4 SUV, and has started delivering components to the Japanese giant. The electric RAV4 isn't expected to sell in huge numbers, as Toyota priced it at almost $50,000, but its existence and visibility is a strong endorsement of Tesla's technology. Additionally, the company gave a little more detail on its deal with Daimler (OTC: DDAIY) to develop a new Mercedes-Benz EV, saying that the program "is expected to exceed in value the sum of all powertrain agreements signed in Tesla history."

Tesla's "Development Services" -- in which the company creates and supplies electric-car motors, transmissions, and related control systems to major automakers -- is a potentially lucrative side business for Tesla, one that could become more significant if its cars fall short of sales expectations in time. And while questions remain about Tesla's ability to sustain sales of its cars after the initial wave of orders, the number of orders the company already has in hand has to be encouraging to shareholders.

Also encouraging is the fact that despite losses, the company's finances are in decent shape -- at least for the moment.

Preparing for the leap to profitability
Tesla is still selling down the last units of its outgoing model, the Roadster sports car, and reports that its automotive gross margins remain very healthy at 28% -- among big-name automakers, only Porsche and Ferrari are in that neighborhood. Margins at Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , and most of the other global, mass-market giants are well below 10%. Tesla's overall gross margin, including its development services unit, was at an impressive 34% for the quarter.

Meanwhile, research and development expenses were up significantly, as expected with the company preparing to bring a car to market. Tesla ended the quarter with $387 million in remaining liquidity, including the balance of a U.S. Department of Energy loan -- $104 million -- that the company expects to draw down over the next two quarters.

But, despite its burn rate, Musk reiterated that he expects Tesla to reach profitability in 2013. The company raised its guidance for 2012 revenue by $10 million to $560 million-$600 million, reflecting the fact that the Model S is a little ahead of schedule, and reiterated that most of that will come in the second half of the year. Second-quarter revenue is expected to be roughly in line with the $30.2 million that Tesla generated in the first quarter.

The upshot: Still big risks, but impressive execution continues
Will Tesla succeed in the long run? It's still hard to say; there are real questions about the size of the potential market for electric cars, and thus about Tesla's ability to generate sufficient annual sales after its early adopter fans get their new rides. But lately the company has been doing everything right, with impressive execution in a business with huge barriers to entry. It will be very interesting to watch the debut of the Model S over the next few months.

Tesla's hope is that rising gas prices will continue to lead more people to consider a premium electric car. Meanwhile, the oil industry is poised to profit as the global price for gas gushes higher. To gain a better understanding of investing in a volatile energy market, check out The Motley Fool's new special report, "The Only Energy Stock You'll Ever Need." It's completely free for Fool readers, but only for a limited time -- so get your copy now.

Fool contributor John Rosevear owns shares of Ford and General Motors. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Ford, and General Motors, and have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 10, 2012, at 7:42 PM, spawn44 wrote:

    From what I've been seeing high priced electric vehicles have not been selling to well. And gas prices have not exactly been cheap. Competition from other companies is coming out the ying yang. Some analyst yesterday recommended selling Ford and buying Tesla. Am I missing something here.

  • Report this Comment On May 11, 2012, at 1:15 PM, TMFMarlowe wrote:

    @spawn44: If you're missing it, I'm missing it too. Tesla's execution so far has been far better than I expected, and they are to be commended -- this is a hard, hard business to enter. But I'm still skeptical that they're going to be able to find 20,000-plus sales a year after the initial demand for the Model S is satisfied -- and if they do, how will they keep their fat margins going once the global giants decide to come after their market? We shall see.

    Thanks for reading.

    John Rosevear

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