Model S Success Helps Tesla Turn a Profit
By EV World Editorial Staff
Can it get any better than this? Tesla wins Consumer Reports highest praise, its stock soars to a new high, and it makes its first profit in a decade.
If I were Elon Musk, about now I would be smiling from ear-to-ear and would find it nearly impossible not to gloat.
Consider. Your 10 year-old company's car, the Tesla Model S electric luxury sedan, receives Consumer Reports highest accolades as not just the best electric car the consumer testing organization has ever tested, but the best car it has ever tested, period. On its rating scale of zero-to-100, CR gave the Model S a 99. See the video below.
On top of that, a decade after its founding by Martin Eberhard, Marc Tapenning, Elon Musk, of course, and Chief Technology Officer JB Straubel, the company declared its first profit ever, a nice GAPP profit of $11 million on sales of $562 million, resulting in a 80% gain over the previous quarter. That number and higher-than-expected vehicle deliveries, some 4,900 units, shot its stock price up to a record high at closing of $69.40, a jump of 24%.
That means, at least for the moment, Tesla has a higher market cap value ($8 billion) than Italy's Fiat ($7.8 billion) and is gaining on Mazda's $9 billion. This from a relatively tiny Silicon Valley start-up who has figured out not only how to build and sell an electric car, but to do it at an engineering and production quality level unexcelled in a century-old industry.
Of course, it doesn't come cheap, nor would you expect it to, which is why Barclay's Bank in England isn't convinced the company will "cross the chasm to the mass affluent market." And there are a lot of short sellers who are betting the company will eventually tumble from its current lofty perch. It's estimated that 45% of investors holding Tesla shares have taken short positions, meaning that they have borrowed shares with the aim of later buying them for a lower price when the stock price inevitably falls; or so they are gambling.
Tesla also reported that it earned $7 million doing contract development work for Daimler and for Toyota, the latter on its second generation RAV4 EV. It also pocketed some $68 million in California emission credits, which represents 12 percent of its quarterly revenue. The company said it expects to see revenue from that sector fall as it moves through the year, but even without the credits, the company would still have made a reasonable profit, analysts said. Additionally, 50 percent of all Model S cars sold were financed through Tesla, which helps earn the company additional cash.
If it maintains its current pace, the company will exceed its original full production year target of 20,000 vehicles by an additional 1,000 units. Four key factors have helped drive profitability:
- Production has been sped up. The company is now able to produce on the order of 50 cars a week.
- It has expanded its service area, which enables it to sell more cars in more places
- It has found ways to reduce costs, enabling it to improve its margins
- It has successfully beat back legal challenges by car dealers to its direct-to-buyers sales strategy.
The success of the Model S also has enabled the company to make an early payment of nearly $13 million on its federal insured loan. That should help dampen criticisms about government loans to failed companies.
Be sure to watch the Consumer Reports video below on its impressions of the Model S. Even with a networth of $4 billion, Elon Musk couldn't buy praise this high.
Bottom line lesson to both established and world-be car companies: build it smart, build it right, and you won't have to pay someone to sing your praises. They'll gladly do it for you.
Consumer Reports Review
Originally published: 09 May 2013
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