Tesla’s (NASDAQ:TSLA) stock price recently fell by around 10% after the company announced that it cut its revenue forecast for the year due to delays in ramping up production for the Model S. In anticipation of an ensuing cash shortfall, the company has renegotiated terms on its $465 million DOE loan, and also plans to raise equity capital through the sale of 5 million shares.
The electric car manufacturer, which originally projected annual revenues in the range of $560-600 million this year, has now revised this downward to $400-440 million. This is primarily due to a decline in the expected number of Model S units produced during this year. 
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Tesla announced that it has slightly delayed the production ramp-up schedule due to manufacturing and supplier issues and, in order to ensure product quality, it expects to produce a total of less than 4,000 units this year. However, it maintains its production target of 20,000 units for 2013.
We believe that the production delay is typical of a scale-up process and, as long as Tesla can deliver on its long-term production targets and maintain sufficient liquidity to support working capital requirements, it does not affect our positive outlook for the company.
Questions Raised Over Viability of Federal Tax Credits and Electric Vehicle Industry
The Congressional Budget Office (CBO) recently released a report titled “Effects of Federal Tax Credits for the Purchase of Electric Vehicles”.  The study indicated that while the tax credits will increase electric vehicle sales, and through price competition potentially also the sales of other high-fuel-economy vehicles, this will allow automakers to sell more low-fuel-economy vehicles since it will be easier for them to adhere to the CAFE (Corporate Average Fuel Economy) standards through offsetting.
The report concluded that the tax credits will have little or no impact on total gasoline consumption and greenhouse gas emissions in the short term, and that while they may have some impact in the long run (2020 onwards), their cost-effectiveness is debatable. Further, it also assessed the ability of the tax credits to increase the cost competitiveness of the electric vehicle industry as a whole, and concluded that the tax credits may have to double or triple to enable larger battery electric vehicles to compete with similar size conventional fuel and hybrid vehicles.
With the study putting the federal tax credits in such a negative light, questions will be raised about the overall viability of the electric vehicle industry. In fact, Toyota recently scrapped plans for an extensive rollout of its new all-electric eQ minicar, saying that the current capabilities and pricing of electric vehicles do not meet society’s needs. Such developments may lead to a downside to our forecast for the EV market as a percentage of the total passenger car market.
We currently have a Trefis price estimate of $37 for Tesla Motors, which is around 35% above the market price.Notes:
- Tesla Cuts Revenue Outlook, Unveils Plan to Sell More Shares, WSJ, September 2012 [↩]
- Effects of Federal Tax Credits for the Purchase of Electric Vehicles (PDF), CBO, September 2012 [↩]