On Tuesday, Tesla Motors'
As I wrote yesterday, CEO Elon Musk ably deflected investor concerns about the loss of the two engineers, who had worked closely on the automaker's upcoming Model S sedan. But Musk and his team also used the call to give an update on the status of Tesla as it prepares to put the Model S into production, and for Tesla shareholders, the news was pretty good.
Musk started off by saying that he is "highly confident" of four things:
- The first Model S would be delivered to a customer by July.
- Tesla will deliver 20,000 cars in 2013.
- Tesla's next vehicle, the Model X SUV set to be unveiled on Feb. 9, "will be very well-received."
- Tesla will have gross margins of "at least" 25%.
While it's not exactly news, that last point remains somewhat eye-popping in context. Mass-market automakers don't typically have margins anywhere near 25% -- 6% to 8% is more the usual range.
But of course, even at 20,000 vehicles a year, Tesla won't really be a "mass-market automaker." Twenty thousand sounds like a lot, but consider that General Motors
That pricing power is what will allow Tesla to have margins comparable to Porsche and Ferrari, generally regarded as the world's most profitable automakers on a per-vehicle basis. But Porsche and Ferrari are immensely powerful, enduring brands, with decades of racing history and classic models that are traded among wealthy collectors like Picassos and Rembrandts.
Tesla doesn't have that kind of brand heft. But Tesla does have a certain cool factor right now, and that will work for them for a while. But I think those margins will be in danger once significant competitors to Tesla's cars appear, and if Tesla is successful, those competitors will appear. (In fact, with the advent of Ford's
But right now, it sounds like Tesla's operations are in quite good shape.
Status report: Almost ready for production
Tesla's managers reported that, as you'd expect, the company is busy making the last refinements to the Model S, working on the Model X, and preparing its factory for mass production. Musk, Chief Technology Officer JB Straubel, and VP of Manufacturing Gilbert Passin talked at length about Tesla's approach to building cars, heavy on automation and -- interestingly -- heavy on redundancy.
While Tesla, like most automakers, will be buying many of its parts and subassemblies from suppliers, the company is determined to have the ability to manufacture most or all of those parts in-house "in a pinch," as Musk put it. That's not something major automakers can (or should) afford to do, but for a manufacturer dealing with smaller volumes that might not command a megasupplier's full attention in that proverbial pinch, it makes sense.
Meanwhile, Passin reported that Tesla's factory, famously acquired from Tesla investor Toyota
Demand for the Model S remains strong
On the "demand generation" front, to use Musk's term for sales and marketing, things are also looking good. George Blankenship, Tesla's sales VP, noted that the company had more than 8,000 "reservations" (Tesla's term for pre-orders, which are accompanied by $5,000 deposits) for the Model S as of year end, and that the sales pace continues to be strong. In fact, he noted, Tesla's strongest week for reservations was the week that the company announced pricing for the Model S, suggesting that concerns about high prices deterring potential buyers were unfounded.
Musk also pointed out that last Friday's hullabaloo didn't slow the company's sales pace. Reservations stayed on track over the weekend, despite the concerns raised by the Bloomberg article. That's good news for Tesla, which from all appearances is on track for a solid result in 2012 -- notwithstanding the challenges that could lie beyond.
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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Tesla Motors, Ford, and General Motors. Motley Fool newsletter services have recommended creating a synthetic long position in Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.