Tesla Motors (Nasdaq: TSLA) reported a loss of $88.9 million on Wednesday after market close. At $0.76 a share, excluding some special items, that was a significant jump from a loss of $0.44 in the year-ago period.
It was also a bit more than the $0.70 loss expected by analysts, as Tesla's revenue dropped 38% from the year-ago quarter.
But, despite missing estimates, the stock opened way up on Thursday -- for very good reasons.
Losses? Who cares? Here's the good news
There's actually quite a bit of good news, as Tesla CEO Elon Musk confirmed that the company continues to execute well on all corners of its business plan:
- Model S is on schedule: Tesla's first mass-produced car, the Model S sedan, is on schedule with deliveries expected to begin in June. Actually, that's a little ahead of schedule, as Tesla has long said that it expected to deliver the first cars in July. This is a big deal: The Model S is the product that is expected to carry the company to profitability, and Tesla's success in delivering it on time says a lot about the company's ability to execute.
- Demand continues to be strong: Musk said in a letter to shareholders that the company now has over 10,000 "reservations" -- its term for orders accompanied by a deposit -- for the Model S. It also has about a thousand reservations for the Model X, an SUV that isn't due for over a year. Model S sales are expected to accelerate later this year: Once production models start arriving at the company's stores, potential customers will be able to take test drives in the Model S, something that hasn't been possible to date.
- Powertrain business continues to develop: Tesla developed the powertrain for Toyota's (NYSE: TM) new all-electric RAV4 SUV, and has started delivering components to the Japanese giant. The electric RAV4 isn't expected to sell in huge numbers, as Toyota priced it at almost $50,000, but its existence and visibility is a strong endorsement of Tesla's technology. Additionally, the company gave a little more detail on its deal with Daimler (OTC: DDAIY) to develop a new Mercedes-Benz EV, saying that the program "is expected to exceed in value the sum of all powertrain agreements signed in Tesla history."
Tesla's "Development Services" -- in which the company creates and supplies electric-car motors, transmissions, and related control systems to major automakers -- is a potentially lucrative side business for Tesla, one that could become more significant if its cars fall short of sales expectations in time. And while questions remain about Tesla's ability to sustain sales of its cars after the initial wave of orders, the number of orders the company already has in hand has to be encouraging to shareholders.
Also encouraging is the fact that despite losses, the company's finances are in decent shape -- at least for the moment.
Preparing for the leap to profitability
Tesla is still selling down the last units of its outgoing model, the Roadster sports car, and reports that its automotive gross margins remain very healthy at 28% -- among big-name automakers, only Porsche and Ferrari are in that neighborhood. Margins at Ford (NYSE: F), General Motors (NYSE: GM), and most of the other global, mass-market giants are well below 10%. Tesla's overall gross margin, including its development services unit, was at an impressive 34% for the quarter.
Meanwhile, research and development expenses were up significantly, as expected with the company preparing to bring a car to market. Tesla ended the quarter with $387 million in remaining liquidity, including the balance of a U.S. Department of Energy loan -- $104 million -- that the company expects to draw down over the next two quarters.
But, despite its burn rate, Musk reiterated that he expects Tesla to reach profitability in 2013. The company raised its guidance for 2012 revenue by $10 million to $560 million-$600 million, reflecting the fact that the Model S is a little ahead of schedule, and reiterated that most of that will come in the second half of the year. Second-quarter revenue is expected to be roughly in line with the $30.2 million that Tesla generated in the first quarter.
The upshot: Still big risks, but impressive execution continues
Will Tesla succeed in the long run? It's still hard to say; there are real questions about the size of the potential market for electric cars, and thus about Tesla's ability to generate sufficient annual sales after its early adopter fans get their new rides. But lately the company has been doing everything right, with impressive execution in a business with huge barriers to entry. It will be very interesting to watch the debut of the Model S over the next few months.
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