Tesla Motors (NASDAQ:TSLA) investors have recently switched gears, selling shares of the electric automaker in droves. Here's why shares have hit a wall, and where the company might be headed next.
The company's stock price has gone from a 52-week high of $194 to its current trading level of about $132 per share. Tesla's recent third-quarter earnings release showed an increase in production to about 550 cars per week. It had more than 5,500 deliveries during the quarter, and more than 1,000 vehicles went across the pond to the European market. The company's non-GAAP automotive gross margin, excluding zero-emission-vehicle credits, rose to 21% from 14% in the second quarter.
Tesla's net loss improved during the third quarter to $38.5 million, or ($0.32) per share, compared to the previous year's loss of $110.8 million, or ($1.05) per share. Quarterly earnings per share, excluding items, came out to $0.12 per share on revenues of $603 million; this beat analysts' estimates of $0.11 per share on $535 million in revenue .
Market expectations may have been too high for Tesla, as its valuation rose to levels that proved unsustainable. After the earnings release on Nov. 5, shares had dropped by 14% by the end of the next trading day.
What's next for Tesla?
For the last six months of 2013, Tesla's retail expansion includes the addition of four stores, increasing the total from 41 at the end of the second quarter to around 45 by the end of the year. The company appears to be placing a greater emphasis on its service centers; by the end of the second quarter, they stood at 47, and are expected to reach 75 by the end of 2013. A greater number of retail stores and service centers, along with an expanded network of supercharger stations, are part of the infrastructure buildup that the company needs to achieve greater mass appeal.
Back at the drawing board, Tesla designers are working on a new vehicle, the Model X, set to debut in late 2014. The Model X will be priced much lower than the Model S, with hopes of attracting a larger audience and increasing sales volume for the automaker.
Research and development on the Model X in part led to an increase in R&D expenses in the third quarter, with those costs up 8% from the previous quarter. Fourth-quarter R&D is estimated to go up by 25% as product development on the Model X continues and enhancements are added to the Model S .
Model X faces competition from Nissan's Leaf
As Tesla works on producing a more economical car, its new model will be competing with cheaper offerings from its competitors. Nissan Motor Co.'s (OTC:NSANY) Leaf is the only mid-sized electric vehicle (EV) that holds five passengers and is priced under $30,000. During the first half of 2013, Nissan had net income of $1.92 billion, an increase of 6.5%. Record sales for the Leaf, noted from March through August 2013, contributed to that increase.
Nissan has been plagued by tough economic conditions in Europe, higher costs due to product recalls, and fluctuating demand in certain emerging markets. The company is making organizational adjustments to ensure it delivers an 8% operating profit margin by the end of the year . The fiscal year ending March 31, 2014 guidance was revised to $114.4 billion in net revenue and $3.63 billion in net income. The net income estimate for yearend reflects a 20% drop in profit outlook due to Nissan's slowing demand in emerging markets and product quality issues .
Plug-in hybrids can steal the thunder away from EVs
In addition to electric vehicles, Tesla's competitors are also offering vehicles in the plug-in hybrid segment. For example, Ford Motor Company (NYSE:F) has the C-MAX Energi and Fusion Energi, which sold well in October and had higher sales than the popular Toyota Prius. In the plug-in hybrid segment, Ford's market share has jumped to an impressive 34% in just 13 months .
Ford had a strong performance in the third quarter, driven in part by strength in its full-size pickup truck segment. Pre-tax profits were $2.6 billion and earnings per share was $0.45, $0.05 per share higher than last year. The company's operating cash flow of $1.6 billion reflected 14 straight quarters of cash growth. Total liquidity by the end of the quarter stood at $37.5 billion, up $400 million since the end of the first halfof 2013.
Tesla's cash balance at the end of the third quarter was $796 million, up $49 million from the previous quarter. It's important for the company to maintain its liquidity and cash position as it grows its brand and works to introduce new models at lower price points. While shares were affected by recent car battery fires, which raised questions about the safety and reliability of the Model S, this may end up being just a bump on the road for the electric automaker. Tesla has set a gross margin target of 25% for the fourth quarter, and investors should watch for more news on what Tesla has in store for 2014.