Tesla Earnings: 3 Crucial Elon Musk Comments From the Call

Tesla Motors (NASDAQ: TSLA  ) proved it wasn't skid proof on Tuesday when the company reported third-quarter earnings after the bell. The electric-car maker didn't deliver the monster quarter many analysts were expecting. As a result, investors pushed the stock lower by more than 16% on Wednesday to about $147 a share, at the time of this writing.

Tesla does the electric slide
Tesla posted non-generally accepted accounting principles earnings per share of $0.12, on net income of $16 million for the period. That was slightly ahead of analyst estimates for EPS of $0.11. Tesla's non-GAAP revenue increased 9% from the previous quarter to $603 million, despite selling fewer zero-emission vehicle, or ZEV, credits in the quarter. Specifically, Tesla made $10 million selling pollution credits during its third quarter, down from $51 million in the prior quarter.

For analysts, the real disappointment was Tesla's quarterly production. Tesla delivered a record 5,500 Model S cars, which was more than the company's previous goal of 5,000 deliveries in the period. Nevertheless, it was below what the Street was expecting. If you weren't able to jump on the earnings call last night, here are three takeaways that every Tesla shareholder should know.

Margins overshadowed by delivery miss
Gross margin came in around 21%, which was significantly higher than analysts' projections of 16%-20%. Tesla's gross margin was especially impressive considering the 21% didn't include sales of carbon credits or ZEV credits. The improvement in gross margin was helped by more European deliveries and sales of the more expensive 85-kWh battery packs.

Tesla expects to achieve a vehicle gross margin of 25% in its fiscal fourth quarter. Tesla's luxury margin makes traditional automakers such as Ford (NYSE: F  ) General Motors (NYSE: GM  ) , and BMW look like chumps. BMW and Ford respectively command an average gross profit margin around 19% and 15%. Meanwhile, GM's margin is even thinner, averaging just 12%.

Musk is confident his company's margins will continue to improve in future quarters as Tesla drives down manufacturing costs.

Entering the largest auto market in the world
On the earnings call Musk said deliveries in China would start in the first quarter of fiscal 2014. The company has already passed all of the homologation requirements in China and launched a soft opening with its Beijing store. Musk went on to say that Tesla expects to put its first cars on a boat to China as soon as January. However, he was careful to specify that Tesla won't be aggressively expanding the scope of its sales strategies in the region until production is able to catch up to demand.

Ultimately, this isn't a terrible problem to have: Tesla can't produce Model S sedans fast enough to keep up with the growing demand for the cars. And demand should only get stronger as Tesla continues to build out its electric infrastructure and supercharger stations around the world.

Building a more efficient future
Musk's plan for a massive "giga factory" was another key takeaway from last night's call. In the future, Tesla aims to build an environmentally friendly factory that would be capable of producing lithium-ion battery packs at a scale comparable to all lithium-ion production in the world.

The massive factory would solve the problem of battery constraint that Tesla faces as it marches toward its goal of producing a mass-market electric vehicle, so far generally called the Gen III. "If we are to produce 500,000 vehicles per year we need cell capacity commensurate with that, which is bigger than all lithium-ion production today, or at least on par with it," Musk explained. It's clear that Musk is serious about ramping up sales volume even if that means building the company's own cell factory.

From factory build-outs to expansion in China, Tesla investors can be sure that the automaker is playing the long game. However, investors may want to take a wait-and-see approach to shares of Tesla because of the volatility in the name today.

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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 07, 2013, at 12:04 AM, randallw wrote:

    Ok, so if one wanted to take advantage of the massive ramp-up of lithium ion batteries in elon musk's future, what would be the best way forward?

  • Report this Comment On November 07, 2013, at 12:24 AM, cameron12x wrote:

    DOW bubble + "Tesla bubble" = Short Circuit.

  • Report this Comment On November 07, 2013, at 6:33 AM, laobagua wrote:

    "investors pushed the stock lower by more than 16%"

    Yup, and then the same investors go complaining that the stock has tumbled. If you don't want the stock to tumble, don't push it down!

    Can't we form a nationwide alliance of investors to agree to keep bidding up stocks? Everyone wins.

  • Report this Comment On November 07, 2013, at 7:39 AM, sabertoothtiger2 wrote:

    The conference call also helped put to rest the idea that maybe only a few people really want a car like the Model S, and once the early adopters have their cars the demand would be severely limited.

    On the contrary, as cars roll out and people see them "in the wild," demand for the Model S seems to be building.

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