Tesla Motors (NYSE:TSLA) did not disappoint investors as it announced yet another set of strong results. During the quarter, the company’s revenues stood at $615.2 million, up from $431.3 million in the third quarter. The net income stood at -$16.2 million, or a loss of 13 cents a share. During the quarter, the automaker sold 6,982 Model S sedans to take the full-year tally to 22,477. 
We have a price estimate of $113 for Tesla, which is about 45% below the current market price. We are in the process of revising our estimates to incorporate the latest earnings.
Tesla had introduced a new lease program earlier in 2013. GAAP requires Tesla to spread out the revenues of the cars sold through this program over the lease tenure (i.e. treating these revenues as deferred revenues). Therefore, a better method to gauge the automaker’s performance is to analyze the non-GAAP figures. On a non-GAAP basis, Tesla’s revenues were $761 million, up from $602.6 million in the third quarter. The net income stood at $45.9 million, or 33 cents a share.
In 2014, the automaker expects to sell 35,000 Model S cars, helped by higher production rates and expansion into new markets. Tesla, which currently produces 600 cars a week, plans to raise its production to 1,000 cars a week by the end of the year. Investors were also anticipating updates related to Model X. However, the delivery of Model X has now been deferred to the spring of 2015. Earlier the automaker had indicated that the deliveries of Model X should begin in late 2014. The optimistic guidance cheered the market as the stock price was up 12% in the after hours trading. Tesla’s shares have soared more than 400% since the start of 2013.
Average Revenue Per Vehicle Corrects
During the quarter, the average revenue per vehicle stood at ~$110,000. During the first quarter of 2013, the average revenue per vehicle went as high as $115,000, buoyed by sales of ZEV credits, to the tune of $60 million. Another reason why the figure was higher during the start of 2013 was because Tesla had primarily delivered its high-end versions first. As the automaker eventually delivered its lower priced options, the average revenue per vehicle witnessed a correction. With Tesla’s recent announcement that Model S’ Chinese pricing will be similar to American pricing, the average revenue per vehicle of a Model S should continue to remain at similar range.
Impressive Margin Expansion
The automaker stuck to its task of achieving 25% gross margins in the fourth quarter, excluding any benefits from the sale of ZEV credits. Tesla’s gross margins have improved from 17.1% in the first quarter of 2013 to 25.2% in the latest quarter, helped by higher volumes and operational efficiencies. What was surprising was that the company thinks there is room to further improve margins. Tesla is now targeting gross margins of 28% by Q4 2014. Auto companies, in their definition of cost of goods, usually include some fixed cost components like labor costs, plant operational expenses etc. Therefore, as volumes increase, the additional revenues often result in improved gross margins.
However, Tesla also cautioned that administrative and capital expenses will rise significantly as the automaker continues to expand into new markets and builds its Supercharger network. Superchargers are charging stations installed by Tesla for its customers to charge their car batteries for free. As of now, there are only 76 Superchargers in North America, but by the end of 2014, more than 80% of the population in the U.S. will be covered by the network.  Similarly, the automaker will also build a pan-European network of chargers that aims to provide a charging point within 200 miles of every person. In addition, the Supercharger network of stations will also be built in China. Although the capital expense might increase in absolute terms, we estimate there will be a drastic reduction in operating and capital expenses, when expressed as a percentage of revenues.Notes: