Tesla Just Raised the Bar

Offering earnings guidance above expectations, whether from Wall Street analysts or internal estimates, is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Electric luxury car maker Tesla (NASDAQ: TSLA  ) surprised Wall Street with a steeper-than-expected loss of almost $400 million in 2012 but also said it expected to be "slightly profitable" come the first quarter of the new fiscal year, which is several quarters ahead of expectations. And even in the face of a damaging and very public tiff with The New York Times, a row that it said probably cost it about $100 million in sales and resulted in hundreds of canceled orders, at least one analyst still believes the carmaker is ready to put the pedal to the metal.

Now don't go blindly buying -- or selling -- on this bullish sentiment because you still need to do some research. Even if it looks like the situation is improving, we can only use the announcement as a jumping-off point for additional research.

Driving ahead
It's not just Tesla's Model S that's lost its charge since the Times brouhaha began. The carmaker's stock is also down more than 12% from the high of $40 per share it hit at the beginning of the month. CEO Elon Musk may have violated one of those cardinal rules of politics that says, "Never pick a fight with someone who buys ink by the barrel."

It's understandable Musk would want to defend his car from what was seen as an unfair critique, but launching a Twitter war that called the road test a "fake" and using a high-profile blog post to attack the credibility of the Times correspondent only allowed the writer to write yet another article going into greater depth about what went wrong and that caused all the media to focus their attention on the issue. The Times then had its public editor dissect the matter yet again, and all that it's done is have investors shy away from the stock.

A thin skin is causing Musk's company to bleed while risking making Tesla out to be a riskier investment than previously believed.

Unplugged
As readers may know, I'm not a big fan of electric cars, though I find Tesla's Model S and the similarly luxurious Fisker Karma to be gorgeous works of art in addition to being modes of transportation. But my concern is the EV hasn't yet arrived for the mass market because they haven't become practical yet. Without subsidies, they're generally overpriced for the range they deliver, and until there are as many charging stations as there are Starbucks coffee shops, they'll remain a niche toy of the well off.

Plug-in car sales in the U.S. tumbled 23% in January from the month before, with General Motors' (NYSE: GM  ) Volt plunging 57%, followed closely by plummeting sales of the Nissan Leaf, which had a drop-off of 56%. Toyota's Prius Plug-in declined 36%. At the same time, gas-powered vehicles were up in North America in January.

Elon Musk predicts he'll be able to sell all 20,000 cars Tesla will produce this year and says production of the Model S should hit 500 a week by the middle of the year. But part of the problem with Tesla's profitability in 2012 was higher-than-expected start-up costs, which rose 29% in the fourth quarter as it experienced sourcing issues. Apparently, parts makers read the industry blogs and based their production on what analysts said Tesla would produce rather than what Musk was actually ordering. That forced the carmaker to go overseas to grab parts to keep on schedule, costing it money in the process.

Off the grid
The CEO also says he expects his car company to be profitable throughout the year, though he's not willing to commit to a guarantee that it will actually achieve that goal. Yet with sales to Europe and Asia expected to begin this year, there at least appears to be the prospect it will achieve its sales forecast. Whether those losses can be turned into profits by doing so remains to be seen.

Last year, Reuters charged that GM was losing $49,000 on every Volt it sold, and while the carmaker refuted those numbers, saying the author included sunk costs in his figures, they do admit that the car is a money-loser. The Volt, they say, is no different from any other consumer car, "even if it takes longer to become profitable."

My Foolish colleague Alex Scherer recently acquired a Model S, as did a relative of mine, and both of them seem to be quite happy with their purchases. But a happy customer doesn't necessarily translate into a joyous investor. As a result, I won't be buying its stock anytime soon, until it's able to demonstrate it can go the extra mile by adding more Supercharger stations and technology that is more in tune with real consumer driving habits.

Raise your sights
Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. Despite progress, a looming question remains: Will Tesla be able to fend off its big-name competitors? The Motley Fool answers this question and more in our most in-depth Tesla research available for smart investors like you. Thousands have already claimed their own premium ticker coverage, and you can gain instant access to your own by clicking here now.

 


Read/Post Comments (14) | Recommend This Article (3)

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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 March 02, 2013, at 6:49 PM, neamakri wrote:

    Your worst fear seems to be "range". Let's get this straight up front; an electric car is NOT meant to replace your gasoline car. It is meant to fulfill your need for a second car to drive "around town". Most people never drive more than 75 miles around town each day for shopping and errands. As such, the LEAF with 90+ mile range suits that need perfectly. I test drove one, it was terrific!

    Let's instead look at the positives. 1.charge up for just pennies a day, and no need to go to a gas station; just do it at home. 2.much less polution. 3.extemely quite smooth ride. 4.does everything a gas car can do, within its 90 mile range. 5.maintenance; tires and wipers! Pretty much nothing else. No gas, no oil, no coolant, no filters, no spark plugs, no mufflers, etc.

    For all you Fools who look for a second car for around town, please consider a LEAF or alternate EV. Otherwise get a gas car that spits out carbon...

  • Report this Comment On March 02, 2013, at 9:42 PM, Garn333 wrote:

    Thank you neamakri!

    At this time most seem to choose to focus on the few short comings of electric vehicles. And there are truly few. Why don’t more reporters speak of the positives…

    At some point we will need an alternative to oil. Maybe 20 years, maybe 100 years, but that time will come. Why not start now on the alternative. Among all the options currently available for transportation, electric seems to be the best thus far. Even if some of the other options end up being the solution, I would say an electric drivetrain will probably be required in most circumstances. Take fuel cells for example, they my end up being THE solution, but they are only a means to store energy. Most designs still require an electric drivetrain. And if they become the solution then just switch out the batteries for fuel cells. All options are worth considering, and should be researched and tested. But I have to say that EVs seem to have one big advantage, the supporting network (Charging infrastructure) is probably the easiest of all to implement at this time. Yes, yes… I know the concerns about the grid being over taxed from new EVs coming online. But most of the fear/concerns seem overblown. And with all the new technology introduced each and every year the grid will need to be upgraded anyway. Just think, only 20 years ago I bet no one would have guess we would all individually request as much electricity as we currently do in our homes and offices with devices like computers becoming mainstream. I’m sure before air condition or refrigerators were developed no one could have guest the power grids would have needed to support such a load. Heck, we still have brown outs during the summers. And when that happened what did we do, say these things are a fool’s want, only for the rich, speak only about their down falls, and say they are not needed to survive. No, instead we all pull together and improve our infrastructure as a country.

    Have a great evening everyone!

    BTW, although I often disagree with “TMF”’s opinions on Tesla motors, I do truly enjoy reading the articles and the discussions they bring. Keep it up!

  • Report this Comment On March 02, 2013, at 11:14 PM, drice1 wrote:

    "until there are as many charging stations as there are Starbucks coffee shops, they'll remain a niche toy of the well off."

    I wish the short-sided would stop making comments like this. If everyone had a gas-pump at home, there would be no need for a gas station at every corner; you would only need them off the major highways...everyone has an outlet at home.

    With a 300 mile range, once there are more charging stations on the highways (about every 100 miles) the gas engine will go the way of the 8-Track.

  • Report this Comment On March 02, 2013, at 11:52 PM, Garn333 wrote:

    Another great point drice1!

    And one I think of often think of when reading negative posts about EVs.

  • Report this Comment On March 03, 2013, at 12:36 AM, Garn333 wrote:

    It’s so great to see more and more people believing in the EV and getting out in the post sections to put out some true and honest information about EVs. Of course you still get the EV defenders that get a little carried away, and over the top (Just like any passionate group I guess. :), but only 1 year ago all you heard/read was negative articles, then even more negative posts supporting those articles. Heck, even Fox News is starting to give positive reports. :) (I’m neutral on politics. But you can see how surprising/great that is as an EV supporter. :) I have to give a lot of the credit to Elon for brining people’s awareness of the benefits of EVs to the forefront. Even if Tesla Motors fails (And I don’t believe they will), Elon I believe, did accomplish what he set out to do with Tesla Motors, to start the EV revaluation! Mission accomplished I would say. Too many big players in the game for them to go away like they did 100 years ago or even 13 years ago back with the EV1. The race is on to build the best and most affordable EV. Let the games being! (My money is on the horse named Tesla! :)

  • Report this Comment On March 03, 2013, at 8:44 AM, Marcustt wrote:

    "Because they are not practical" what kind of research did you do?

    The average american drives less than 30 miles per day, with a range of 300 miles most of us can drive the tesla for 10 days with one charge. Talking about long trips, I do not even remember the last time I have drove 300 miles straight. In those cases I am convinced I would not regret to stop for one hour to recharge for free.

    When I read this kind of articles I became suspicous, why you do not mention that this new technology does not need gear box, nor transmision, nor breaks, nor oil changes, the energy efficiency is in the range of the 90% instead of the %25 in regular cars.

  • Report this Comment On March 03, 2013, at 9:56 AM, klaud1 wrote:

    This reminds of the old tale,on youtube,who kill the electric car.?

    http://www.youtube.com/watch?v=k96tIRjxzw0

  • Report this Comment On March 03, 2013, at 10:34 AM, khlebnikov wrote:

    "Beautiful, well-crafted, cool, and seriously fast, the Model S isn't just the most important car of the year. It's the most important car America has made in an entire lifetime."

    http://bit.ly/XBADRt

    Yet another accolade for the S, this time from Road & Track. Frankly, my view on the NYT kerfuffle is that it ended up generating some extraordinarily good press, led by CNN and CNBC drive recreations that went flawlessly and probably wouldn't have been followed closely otherwise. I'm long TSLA, but regardless, I think it's undeniable that Musk's execution has been near flawless and if it continues, we're looking at an automotive revolution....

  • Report this Comment On March 03, 2013, at 12:34 PM, tondog9070 wrote:

    As your article points out there's a delta between Tesla having a cool product vs. Tesla stock being a good value (i.e. being worth $4 bil).

    I think the current valuation may be tuff to justify. Not only will Tesla need to sell somewhere around 20,000 units / year BUT they will need to repeat a similar volume year after year. The car industry is about as intensive competitive as there is. Just look at the current generation of the Hyundai Sonata, it blows away a 5 year old BMW 3 Series that cost 30% more new. Is a 2013 3 Series nicer than the new deluxe Sonata? Probably but your having to spend 35% more to prove it.

    While I agree that Tesla has put out a very pretty, intelligent product they are going to have to do everything right (and probably need a little luck) to justify the current market cap. A lot of investor $ has been burned buying into "alternative" energy stories. But hey that's what makes a market!

    Tony

  • Report this Comment On March 03, 2013, at 1:31 PM, ToddRLockwood wrote:

    Rich, you're missing some fundamental points about Tesla...

    • Tesla's competition is not the Chevy Volt or the Nissan Leaf. Buyers of a Model S are probably not considering another EV as an alternative; they're considering a BMW 5 series or an Audi A7. The fact that the Model S is electric is secondary to its looks, performance and technology. The Fisker Karma, a gas-powered electric car, is a non-starter as far as Tesla is concerned.

    • What makes the Model S a breakthrough automobile is its range. With 265 miles (EPA rated) range on a charge, the Model S has practically made public charging stations obsolete. Most owners will rarely charge outside their own garage. To read how this works on a daily commuting basis, check out what these owners have to say...

    http://www.teslamotorsclub.com/showthread.php/13810-Daily-Co...

    • Tesla's Supercharging network is a marvel unto itself. The Superchargers are eight times faster than typical public charging stations, and Tesla has recently hinted that they will get even faster in the near future.

    • Subsidies? What subsidies? Tesla received a Department of Energy loan to develop viable electric transportation technology, and they have succeeded beyond DOE's expectations. Tesla plans to pay the loan back early.

  • Report this Comment On March 03, 2013, at 2:18 PM, Pixma25 wrote:

    "until there are as many charging stations as there are Starbucks coffee shops, they'll remain a niche toy of the well off."

    If only we lived in a magical world of the future where electricity was available in every home in the country. heheh

  • Report this Comment On March 03, 2013, at 3:16 PM, tennajTYTarmy wrote:

    I wonder how much the oil companies and or competition paid for that New York Times article. BTW TYT army here. Peace

  • Report this Comment On March 03, 2013, at 3:33 PM, Marcustt wrote:

    "Overpriced"

    Musk was very clear about the business plan released in 2006. The company would start selling premium overpriced car to allow Tesla to reach the needed scale for middle class cars.

    With the second car (model S) tesla is able to offer a luxury car for just 50k. I am wondering how much would be charging us the lazy detroit guys if they were manufacturing only 20k cars per year, and I am not talking about luxury, I am sure that even the agly impala would cost more than $150K at this scale.

  • Report this Comment On March 04, 2013, at 12:57 PM, LoveMyTesla wrote:

    Good point Marcustt.

    Hey, the price is what the market will bear. Once Telsa can keep selling cars for $70, they'll drop the price. At that time, they'll have covered their factory build out costs and should be covering overhead with the production of the Model X. Yah, they'd do well to roll out a $30K smaller car which still has twice the range of the Leaf.

    Keep the momentum Tesla!!

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