Tesla Motors (NYSE:TSLA) is scheduled to release its financial results for the second quarter of 2012 on July 25. The company recently launched the Model S and will conclude the sales of Tesla Roadster, a battery electric vehicle (BEV) sports car over the course of this year. The primary trends to watch out for this quarter are the impact of heavy investments on the company’s financial position and the ability of the company to execute its stated goals, which many consider highly ambitious.
We currently have a Trefis price estimate of $40.74 for Tesla, which is about 36% above the market price.
Difficulty Achieving Production Targets
- How Much Of Tesla’s Overall Revenue Is Unrecognized Due To Accounting Principles?
- How Much Do Tesla’s GAAP and Non GAAP Margins Differ?
- How Much Revenue Does Tesla Make Per Each Unit Vehicle Sold?
- How Has Tesla’s Gross Margin Behaved Over The Last Three Years?
- How Much Does Tesla Spend On Research and Development?
- How Much Does Tesla Spend On Selling, General and Administrative Expenses Per Unit Sold?
Tesla recently launched the Model S, a premium sedan which has received positive reviews all round.  The company’s original goal was to manufacture 5,000 units this year and ramp up production to 20,000 units in 2013, by which point the company was expected to turn profitable. However, according to Wunderlich Securities analyst Theodore O’Neil, Tesla now says that it expects to produce only 500 units per month this year instead of the original target of 1000 units. 
As a result, it looks increasingly likely that the company will be unable to achieve its stated goal of producing 5,000 units this year. This quarter’s results may provide a better indication as to whether this is a temporary blip or a long-term problem.
The second issue to consider is the impact of the substantial investments into various parts of the business. These investments are in three main areas: the development of the upcoming Model X (planned for launch in 2014), the expansion of the factory’s production capabilities in order to meet stated goals, and the expansion of the sales network. This outflow comes at a time when Tesla has ended Roadster production due to the termination of its supply agreement with Lotus, which produced certain components for the Roadster. Tesla has already sold 2,250 Roadsters, and plans to sell the rest of the units (around 250) in Europe and Asia over the course of 2012.
Although it plans to increase powertrain component sales and expand the development services division, income generated from these two divisions has historically been only a small component of total revenues, and we expect it to remain that way. Effectively, it is going all in on the Model S.
The financial position of the company is still relatively stable largely due to the loans provided to them under the terms of the Department of Energy (DOE) loan facility. According to management, these loans will provide liquidity until the company turns profitable in 2013. However, the impact of the heavy investments on the financial position must be carefully observed.
To conclude, Tesla faces a difficult 2012, and it has a lot banking on the sales performance of the Model S. Regardless of financial performance this quarter, we believe that the best indicator of its long-term profitability is its ability to achieve its stated goals.Notes:
- Tesla Model S Review, WSJ, 6 July 2012 [↩]
- Tesla: Wunderlich Cuts To Sell; Says Q3 Forecasts At Risk, Forbes, 18 July 2012 [↩]