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Tesla's 1st Profit Blows Away Expectations

Tesla delivered 4,900 Model S sedans in the first quarter. Photo credit: Tesla Motors

Tesla Motors (NASDAQ: TSLA  ) announced a first-quarter profit of $15 million, excluding some items, late on Wednesday, a result driven by strong sales of the company's award-winning Model S sedan.

Tesla's $0.12 per-share profit was well above Wall Street's consensus expectation of $0.04 a share, according to Thomson Reuters. Needless to say, it was also a huge improvement over Tesla's $0.76-per-share loss in the year-ago quarter.

Shares moved sharply higher in after-hours trading on the news.

Tesla's first-ever profit comes on stronger-than-expected sales
This was Tesla's first-ever quarterly profit in its 10 years of existence, and it comes as the Silicon Valley start-up continues to ramp up production and sales of the Model S, its second vehicle and the first to be mass-produced in Tesla's California factory.

Tesla said that it produced more than 5,000 Model S sedans during the first quarter, and that it "recognized 4,900 vehicles as revenue," meaning that they were fully paid for and delivered to customers.

That's a strong result. CEO Elon Musk said in a statement that it was made possible by Tesla's focus on improving production efficiency, something that in turn was made possible as the company's processes (and its suppliers) got up to full speed. That focus on improvement led to a 40% decline in the time required to build a Model S between December and March, Musk said.

A big jump in revenue driven in part by sales of tax credits
Tesla's revenues rose to $562 million in the first quarter, an 83% increase from the fourth quarter of 2012. Not all of that was from Model S sales: Musk said that Tesla continued to supply electric powertrains and battery packs to Toyota (NYSE: TM  ) for use in the Japanese giant's all-electric RAV4 SUVS.

Tesla also continues to work with Mercedes-Benz on development of a small electric car; that work generated $7 million in revenue during the quarter, Musk said.

Tesla acknowledged that it had made $68 million, or 12% of its total revenue during the quarter, via the resale of "Zero Emission Vehicle," or ZEV, tax credits issued by the state of California.

Analysts had recently speculated that the sale of ZEV credits could account for a significant portion of Tesla's earnings. Under California's arcane green-car laws, Tesla receives a credit for about half of the cars it sells. It then resells its credits to other automakers who don't yet meet California's ZEV sales requirements. Tesla says it expects that revenue to decline in time, as less of its total production will be eligible for the credits (because they'll be sold overseas) and as the market price for ZEV credits declines.

The outlook: mostly bright and shiny, Tesla says
Tesla's gross margin was 17% in the first quarter, up from 8% last quarter. That's a good increase, but it's still short of the 25% promised by Musk by the end of this year. Not to worry: Tesla reaffirmed its guidance on that front, saying that it would have a 25% gross margin in the fourth quarter of 2013 -- even if revenues from the sale of ZEV credits fell to zero.

Tesla expects to build about 5,000 cars during the second quarter, but it only expects to record about 4,500 sales, as some of its second-quarter production will be in transit to Europe at quarter's end. For the full year, Tesla raised its guidance to 21,000 Model S deliveries from the 20,000 it had previously expected.

And on profits? Tesla says a small loss is likely next quarter, because of costs of launching the Model S in Europe and the deferred recognition of some revenue caused by the accounting requirements of the company's new quasi-lease program. Other expenses, most related to the development of Tesla's next model, will weigh somewhat in the current quarter.

We'll have more in-depth coverage of Tesla's first-ever profitable quarter in coming days. Meanwhile, what do you think? Does this profit mean that Tesla is here to stay? Or does the company still have more work to do? Scroll down to leave a comment and let me know your thoughts.

A closer look at Tesla
Near-faultless execution has led Tesla Motors to the brink of success, but the road ahead remains a hard one. 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 (9) | Recommend This Article (8)

Comments from our Foolish Readers

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 08, 2013, at 5:29 PM, Marshgre wrote:

    Sitting here watching the after hours numbers steadily climbing above the $64 mark.

  • Report this Comment On May 08, 2013, at 7:01 PM, MartyTheCanuck wrote:

    Great car, great execution, great results. True Rule-Breaker.

    69$ now, short squeeze going on, hard to say where it will be tomorrow. Not that it matters much, I'm in for the long run.

  • Report this Comment On May 08, 2013, at 7:02 PM, TMFNewCow wrote:

    Thanks for the quick recap, John.

    -- Evan

  • Report this Comment On May 08, 2013, at 7:16 PM, TMFMarlowe wrote:

    I don't usually look at short-term trading indicators, but I saw a report this afternoon showing huge short interest and options activity on TSLA. It was clear that a big move was in the offing, the only question was which way... and that question was answered as soon as the release hit the wire.

    Thanks to all for reading and enjoy the ride.

    John Rosevear

  • Report this Comment On May 08, 2013, at 9:36 PM, wolfhounds wrote:

    Back out the $68m tax credits, the $17m stock warrant reversal, you're left with a massive operating loss. How many cars would TSLA have to sell and at what operating margin to actually be able to calculate EPS that aren't cooked. The next few quarters will tell the story, not this one. I'll put my money elsewhere for now.

  • Report this Comment On May 09, 2013, at 8:55 AM, TMFMarlowe wrote:

    @wolfhounds, I've certainly been a Tesla skeptic on some fronts all along, but these numbers aren't "cooked". Wrong word. The shareholder letter explained pretty clearly what's going on. The numbers are what they are, and this quarter they added up to a small profit. Good for Tesla.

    I agree that the next few quarters will tell the story, though I actually think it might take longer than that. At some point, if Tesla continues to rack up sales, a major automaker will try to enter this space. THAT is when we'll really see how this is likely to play out.

    Thanks for reading.

    John Rosevear

  • Report this Comment On May 09, 2013, at 11:02 AM, wolfhounds wrote:

    Thanks John. You're correct, cooked was not what I meant. My point was the lack of recognition by most analysts that, absent the stock warrant reversal, there was an actual operating loss at a presumed high level of sales.

  • Report this Comment On May 09, 2013, at 1:00 PM, talotu wrote:

    Given how often my TSLA shares have been loaned out to shorts (at around 36% interest) there is no doubt that the squeeze play is on.

    I'm not planning on dumping my shares yet, but it might be a time to add a short-term bear spread to catch the fallout from the short squeeze

  • Report this Comment On May 10, 2013, at 9:19 AM, phexac wrote:

    $8 billion valuation for a company with $500 million revenue and $15 million profit in the latest quarter. That's a buying opportunity right there.

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