Tesla Motors to Wall Street: Can't Hold Me Down

Investors pushed shares of Tesla Motors (NASDAQ: TSLA  ) up more than 15% in after-hours trading yesterday amid the company's fourth-quarter-earnings announcement. The stock's price surged above $223 a share late Wednesday, but settled near $215 on the open today. Here are the key takeaways from Tesla's earnings call yesterday, as well as what investors can expect from the electric-car maker in the quarters to come.

Oh the places you'll go... in a Tesla
Before we rehash Tesla's quarterly results, one standout from the call was the progress Tesla has made in China, the world's largest auto market. Not only is Tesla's global expansion plan on schedule, but also it's off to a faster start than many anticipated. In fact, the company said its Beijing store is now Tesla's "largest and most active retail location in the world," according to a press release. 

Source: Tesla Motors.

That's particularly impressive considering that Tesla hasn't delivered any Model S cars to customers in China yet. The California-based company said the first deliveries to the Chinese market are scheduled for this spring. Nevertheless, China is critical to Tesla's future success. Tesla's chief financial officer Deepak Ahuja said the company is working with the Chinese government to see how Tesla's Model S cars can be included in the country's electric-vehicle incentives. As it stands, Tesla cars don't qualify for government subsidies in China because they are imported.

Tesla does, however, plan to install its Supercharger network in China in the coming quarters. This creates a way for Tesla to indirectly incentivize Chinese drivers to buy Tesla's zero-emissions cars, even without the aid of government subsidies.

Referring to demand in China, Tesla CEO Elon Musk said, "[Based] on current trends it seems unlikely that we will be able to satisfy demand in China this year." However, for investors, this is the better problem to have because it means Tesla can't make cars fast enough to meet the strong demand for its products, not only in the U.S., but also worldwide.

What do the numbers tell us?
Diving into the company's quarterly results, a few things stand out. First, Tesla earned $40 million in positive free cash flow in the fourth quarter, excluding non-cash executive compensation and related costs. This drove up Tesla's cash stash to $846 million as of the end of December 2013 -- proving Tesla is, in fact, making money on the production of its cars.

Tesla delivered 6,892 Model S cars in the fourth quarter, bringing its annual total for fiscal 2013 to around 22,000 vehicles. In fact, the Model S was the best-selling vehicle in North America among comparably priced cars last year, according to Tesla. Looking ahead, the EV maker expects to surpass its 2013 deliveries by as much as 55% -- Tesla aims to deliver more than 35,000 electric cars to customers in 2014. To accomplish this feat, Tesla will need to ramp up production from its current levels of roughly 600 vehicles per week to about 1,000 cars per week by the end of the year. 

Investors can also look forward to gross margin expansion in the year ahead. Tesla expects its automotive gross margin to increase about 28% in 2014, as the company benefits from better supplier prices and achieves economies of scale. However, investors should keep in mind that Tesla will need to continue investing in infrastructure and global expansion, as well. Therefore, investors should see a meaningful spike in operating expenses and capital expenditures in 2014 as well.

Overall, there was little not to like in Tesla's latest earnings -- even Wall Street couldn't complain. If the company continues to execute as well as it has up to this point, 2014 could be an even better year for the EV maker than last year. But if you're kicking yourself for missing out on the Tesla rally, don't worry. The Motley Fool has uncovered some exciting new growth stock picks for the year ahead.

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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9/3/2015 3:09 PM
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