Tesla Motors: Making Cars, Making Money

Tesla Motors: Making Cars, Making Money

As predicted by CEO Elon Musk, Tesla Motors has turned a profit in the first quarter of 2013.  $15 million worth of it.  But then again, that is the kind of thing that happens when you sell more electric cars than anyone else in the industry.

Tesla CEO Has To Be Pleased His Company Is Finally In The Black

Tesla CEO Has To Be Pleased His Company Is Finally In The Black

After the markets closed, Tesla announced a profit of 12 cents a share, or around $15 million (the street estimate was for four cents), while revenue for the 4th quarter rose 83% at $563 million, about $60 million more than the street expected.  About $7 million came from "various deliverable under the Mercedes Benz B-Class EV program."

Expectations for this quarter were indeed very high, as indicated by the near 2/3rds jump in share prices this year, and 35% for the month before the earnings were reported today.

Tesla said of the event in a statement to shareholders:

"Tesla reached profitability in the first quarter of 2013 for the first time in our ten year history. We exceeded our own targets for deliveries, significantly expanded gross margin, and improved execution throughout the company. Excluding non-cash warrant and stock option items, we generated a profit of $15 million. Including those factors, our GAAP profit was $11 million. Importantly, we achieved profitability despite the benefit of a one-time accounting gain related to the DOE warrant."

Tesla Model S Is A ZEV Credit Earning Machine

Tesla Model S Is A ZEV Credit Earning Machine

In the only part of the earnings report that could really cast any doubt on future earnings, Tesla's financials show that $68 million worth of ZEV credits were sold in Q1 of 2013, a resource that can not be tapped close to this extent in future quarters...and without them, the company would not yet be profitable.

"We expect (ZEV revenue) to decline significantly in future quarters, as ZEV credits will only apply to about 1/6 of worldwide deliveries, versus roughly half of US deliveries, and the price per credit has declined."

Regardless of selling any future ZEV credits or not, Tesla reaffirmed to shareholders that the company would achieve gross margins of 25% by the 4th quarter of this year.  For Q1, gross margins came in at 17%.

As for the sales of the Model S itself, Tesla bested an earlier estimate of selling 4,750 cars in the first three months of the year by stating they moved more like 4,900 Model S sedans to customers, while noting all the proper paperwork had been done to achieve those numbers.  Last month, an email sent out by Tesla asking customers to firm up orders had cast some doubt on the validity of sales results.

"During Q1, we consistently produced 400 or more Model S vehicles per week, for a total of over 5,000 during the quarter. We recognized 4,900 vehicles as revenue, exceeding our initial Q1 guidance of 4,500, despite physically delivering a higher number of vehicles, as the standard for revenue recognition was extremely high."

Tesla Says It Now Expects to Sell 21,000 Model S Sedans In 2013

Tesla Says It Now Expects to Sell 21,000 Model S Sedans In 2013

On the future outlook, Tesla says that they are seeing "strong global demand for Model S" and are receiving orders at a rate greater than 20,000 per year.  As a footnote however, the company did not express this metric post reservation cancellations, but did note that the US reservation system has now been eliminated thanks to more reliable vehicle production in the quarter...so that may be a moot point.

Tesla noted that their service network expanded to 41 locations, up 12 in the quarter, while hoping to add 18 more throughout the year.  As for boutique stories themselves, Tesla now has 34 of them, with a plan to open about 15 more in 2013; half in Europe and Asia.

Outlook:

  • Tesla expects to build about 5,000 Model S vehicles in Q2
  • Some cars will be in transit to Europe for start of deliveries in Q3, so deliveries will be "slightly over" 4,500 vehicles in the next quarter
  • For 2013 in total, Tesla increases guidance from 20,000 Model S sedans to 21,000
  • Tesla expects to achieve gross margin in the "high teens" in Q2 when factoring the loss of lower ZEV credits, and a lower average selling price on the Model S thanks to a higher mix of 60 kWh cars
  • Cancelled 40 kWh cars will have range-limited 60 kWh packs which will also adversely affect gross margins in the near term
  • Operating expenses as well as R&D expenses are expected to increase slightly in Q2
Overall, the report looks about as good as Tesla could have hoped for, and investors seem to agree as the stock traded up as much as $19.98 (36%) @ $75.77, before falling back slightly to $69.40, still good for a massive 24.4% gain (+$13.61).   A real time quote can be found here.

Tesla shareholder letter and all the financials can be found here.