Will Tesla Earnings Scare Ford and General Motors?

Tesla Motors (NASDAQ: TSLA  ) will release its quarterly report on Tuesday, and investors are expecting the electric-car upstart to report an adjusted profit for the third quarter in a row. With the rate of growth that Tesla has seen lately, should Ford (NYSE: F  ) and General Motors (NYSE: GM  ) start getting scared if Tesla earnings continue to move sharply higher this quarter?

Source: Wikimedia.

Tesla has generated controversy among investors ever since its IPO, with skeptics pointing to its sky-high valuation while proponents argued that its growth rate would justify premium share prices. So far, the bulls have had the better part of the argument, as Tesla faster-than-expected journey to profitability points to the huge early success of the Model S. But even as value investors keep saying the stock is too expensive, the more important long-term question is whether Ford and General Motors will start reacting more directly to Tesla's competitive threat before Tesla can gain any further momentum. Let's take an early look at what's been happening with Tesla Motors over the past quarter and what we're likely to see in its report.

Stats on Tesla Motors

Analyst EPS Estimate

$0.11

Year-Ago EPS

($0.92)

Revenue Estimate

$534.64 million

Year-Ago Revenue

$50.10 million

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How far can Tesla earnings grow this quarter?
Analysts have kept boosting their views on Tesla earnings in recent months, having formerly expected only around break-even results for the third quarter and boosting full-year 2013 and 2014 estimates by $0.60 to $0.70 per share. The stock has been volatile but is up 20% since early August.

Tesla's second quarter results spurred even more excitement about the electric-car maker back in August, with the company surprising investors by posting an adjusted profit. Tesla beat its own sales goal by selling 5,150 Model S cars during the quarter, and the company expects recent gains in margins to help it meet its goal of 25% gross margin by the end of 2013.


The Tesla Model S. Courtesy Tesla Motors.

So far, much of Tesla's success has come from a near-complete lack of viable competition, as existing electric vehicle alternatives have short ranges. But General Motors said in September that it was working on an electric car with a range of 200 miles yet would cost half what the Model S does. The big question for GM is how quickly it can roll out a rival electric vehicle, especially given that Tesla is working on a more affordable model of its own for more cost-conscious car-buyers. If General Motors can't roll out its lower-priced EV entrant first, it could end up being too far behind the times to be relevant.

Meanwhile, Ford, General Motors, and other automakers are also looking at alternatives to avoid the major battery challenges that face electric vehicles. Ford has been part of a partnership with Daimler and Nissan to develop hydrogen-powered fuel-cell vehicles by 2017, seeking to eliminate the need for heavy and expensive lithium-ion batteries. With two separate incidents of Model S cars catching fire in the past month, Tesla could face backlash despite the obvious rejoinder that hydrogen could pose just as much if not more of a risk.

One fascinating aspect of Tesla comes from CEO Elon Musk's assertion that Tesla could offer cars that could drive themselves for 90% of the miles that drivers use them. General Motors and Google have done their own work with self-driving vehicles, but Musk's reputation as an innovator arguably lends Tesla more credibility in its claim.

In the Tesla earnings report, be sure to look beyond the headline numbers to see where adjusted profits are coming from. With zero-emission vehicle credits starting to ramp down, Tesla will need to generate more of its profit the old-fashioned way. For now, though, it looks like Tesla has momentum on its side.

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Read/Post Comments (9) | Recommend This Article (4)

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 November 03, 2013, at 8:54 AM, drax7 wrote:

    Article full of hypothetical threats that are only meant to keep you from making money. Perfect example of looking for Negative confirmation bias.

    GM should worry about BMW, Mercedes, and Toyota, that have made it irrelevant in ICE cars.

  • Report this Comment On November 03, 2013, at 9:40 AM, Jason87467 wrote:

    I have read many times that Tesla has not made a real profit. I wish the media would stop glorifying this company.

  • Report this Comment On November 03, 2013, at 9:41 AM, coll1951 wrote:

    Dan, I suspect they've already filed the bankruptcy papers, anticipating a Tesla profit. Dan, these companies have survived world wars, depressions, recessions, Presidents, Congresses, and people like you. They are more adaptable, than you believe. They are in the transportation business, unlike Tesla, who is in the electric battery business (which needs coal and nuclear power plants). Plus, not everybody can afford a $100,000 car, like your buddies in the Silicon Valley, that the rest of the taxpayers have to help pay for.

  • Report this Comment On November 03, 2013, at 10:48 AM, hthomas49 wrote:

    What do they mean by "adjusted profit"? Does this mean they are recording expenses as assets?

  • Report this Comment On November 03, 2013, at 1:45 PM, duuude1 wrote:

    The four comments above are evidently from the Chairman, CEO, president and CFO of either Ford or GM or both :)

    None of whom are really concerned about Tesla, about electric vehicles, about changing and improving their products to really improve people's lives...

    So they just scoff at Tesla.

    Just like music industry execs scoffed at Apple iTunes.

    Just like cable execs scoffed and called Netflix the Albanian Army.

    Just like the dinosaurs scoffed at the rodents scrabbling at their feet before the meteor hit...

    It's that attitude that makes companies and jobs evaporate...

    Duuude1

  • Report this Comment On November 03, 2013, at 2:40 PM, duuude1 wrote:

    Dan,

    Does the Fool have any insights into the execs who run the electric vehicle R&D for Ford and GM? What are their backgrounds and track records for innovation?

    I'm sure that Ford and GM have many times the manpower and $$'s compared to Tesla. But my experience with Netflix leads me to bet with a hyper-smart small company rather than to bet on an established well-financed monster like Comcast or TWC.

    Hey duuude, what's that up in the sky? Is that a meteor? There's something on the side of the meteor - it looks like - it says something - the meteor has "Tesla" on it, and it's going to land on GM's headquarters!

    :)

    Duuude1

  • Report this Comment On November 03, 2013, at 10:54 PM, CrazyDocAl wrote:

    If not for selling the use of it's patents and money paid to it for carbon offsets the company would not of had one profitable quarter. I don't car how fast Tesla is expanding, it has to make a profit on it's cars.

    Secondly what's expanding about the company? Sales of it's cars is flat. Sure when you look to last year's sales numbers but since the S is just over a year old last years numbers are irrelevant. What is important is that month to month sales are not increasing even though, if Musk is being truthful, production capacity is going up and the car is being sold in new markets (countries).

  • Report this Comment On November 04, 2013, at 11:42 AM, ashaskevich wrote:

    When you make a product that is too expensive to operate, that product will be replaced.

    Gasoline cost $3.00/gallon here in Houston ( energy capital of the world ) but electricity costs 11cents/kilowatt. Are gas prices going down. A little right now, but come springtime they will spring right up!!

    What is the story here? GM, Ford, Toyota, etc....better start making electric cars or they will be out of business.

    Do the math.

  • Report this Comment On November 04, 2013, at 12:09 PM, ziggysays wrote:

    I own a Tesla. I drive the hell out of the thing (about 600+) miles per week. It costs me $130 bucks in electricity at .11 a Kwh.

    It needs no oil, no gas, no transmission oil, no radiator fluid.

    It is fast, solid, reliable.

    No, Ford or GM has nothing at all to worry about. Carry on!

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