Tesla (NASDAQ:TSLA) Silences Critics on Profitability

Brian Hicks

Written By Brian Hicks

Posted May 10, 2013

Momentum swings in Tesla’s favor.

Tesla Motors Inc. (NASDAQ: TSLA) announced its first quarter profit for 2013. In the company’s shareholder newsletter, it announced it underwent an increase of 83 percent from the previous quarter, totaling $562 million.

Tesla credits faster production rates and higher deliveries of its signature Model S, which has gained rave reviews among consumers and analysts.

tesla-motor-model-sThe newsletter goes on to say that Tesla produced over 400 Model S vehicles per week, with a total of 5,000 vehicles in the first quarter. The company had an original goal of 4,500 but managed to sell 4,900.

Tesla expects to exceed its goal of 20,000 worldwide deliveries in 2013, with plans of expanding more heavily beyond the North American market.

U.S. demand is projected to be 15,000/yr and global demand over 30,000/yr.

Tesla was also able to cut costs and produced $30 million in cash flow from properly managing inventory.

Shares surged nearly 25 percent yesterday and were up as much as 12 percent this afternoon as Tesla gains more investor confidence.

Consumer Reports gave the Model S a near perfect score of 99 out of 100, CNNMoney reports. Were it not for the recharge time, critics would have been more than willing to give Tesla’s EV a perfect score, a rare grade in automobile history.

The Model S also won numerous awards, including the Motor Trend’s Car of the Year in 2013.

Tesla CEO Elon Musk has reason to celebrate, especially for a company that has had its fair share of critics.

Tesla Success

Tesla has its detractors, but regardless of the naysayers, Musk has been able to shake the foundations of the automobile industry and open new doors for the green energy industry.

To many, the Model S is considered America’s luxury car.

The Model S has gained a positive reputation among consumers – especially for its low-cost battery options and guaranteed battery warranty program for a sound piece of mind.

Tesla has been able to combat the stereotype that EVs are ugly in appearance and slow on speed. The cheaper EVs on the market are visually unappealing to many consumers and are generally limited in range. And the sleeker sport/luxury variety is far out of the budgets of many people.

Tesla has the fastest range of any EV on the market, going for 300 miles on a charge.

The company has been able to maintain a delicate balance of luxury and affordability, aiming for a reasonable enough price range for someone who saves up and wants to splurge on a new vehicle.

Model S is priced at $70,000, stamping out higher-priced luxury EVs with inferior range. This explains why there is growing demand in Europe and Asia, where Tesla can make successful inroads into automobile markets overseas

When you think of car makes like Ferrari, Jaguar, or Mercedes, you generally think of only two types of customer who will buy such high-class vehicles: someone with plenty of disposable income, or middle-aged men undergoing a mid-life crisis.

But Tesla vehicles are able to reach into a diverse consumer base – not only among the high-money crowd, but also the energy/environmentally conscious and even your average person.

On the financial side, Tesla has been able to work with Wells Fargo (NYSE: WFC) and US Bank in allowing purchasers to pay with no money down and payments as low as $580 per month – a beneficial payment plan considering the subtraction of weekly gasoline costs.

And when customers purchase the car for business use, the depreciation factor could render the vehicle as low as $350 a month, according to the official newsletter.

Tesla has also benefited from limited competition within the EV market. The Nissan Leaf has been a direct competitor, but it does not have the range and visual flair to match the Model S.

Tesla was also able to beat GM’s (NYSE: GM) hybrid Chevy Volt in the sales arena, a vehicle favored for its gas-powered engine as a backup source of energy.

Fisker Automotive, Inc. was trying to carve out a niche within the luxury green car market, but the company is heading into bankruptcy, and its latest hybrid luxury model Karma is not nearly as impressive as the Model S among critics, particularly considering the hefty price tag range of $100,000 to $115,000.

Tesla has been able to beat out the competition from some of the automotive industry’s heaviest players, and it is quite a feat for a smaller company that has only recently generated its first quarter profit.

EV Investors

This could be the moment that EV investors have been waiting for, since Tesla is bypassing the hybrid market and directly introducing the public to a car entirely independent of gasoline.

If you’re someone interested in EV investing, then pay special attention to the energy storage sector as well.

Lithium-ion batteries and energy storage technology are two of the most important elements within the EV market because it will be those components that will convince normally hesitant buyers of green vehicles to purchase a Tesla or some other type of EV.

As energy storage technology progresses, you can expect it will play a more pertinent role in the EV market – competing head to head with hybrids and conventional cars.

Tesla has been able to alleviate buyer concerns of battery failure with quality battery products and a stellar warranty program.

And warranties are one thing, but spending capital on R&D is the key that led to Tesla’s success.

Tesla plans to spend $200 million in capital expenditures for 2013. The spending will include product development, store locations, and expanding service.

The EV market has gotten off to a rough start, but some car makers are beginning to realize there is money to be made in this sector by combining luxury and affordability.

If more car makers catch onto this trend, you can expect to see more EVs on the road. 


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