May 13, 2013 at 7:41 AM ET
Bet against Tesla founder Elon Musk at your own peril. Just ask the short-sellers who predicted his Tesla Motors would be the next electric carmaker to short-circuit.
Quite the opposite has happened. The California electric vehicle manufacturer reported this past week its first-ever profit of $11.2 million as sales of its Model S sedan outpaced even its own optimistic expectations. Tesla is promising even better numbers for the rest of the coming year as it ramps up production at its assembly plant near San Francisco and opens up new markets in Europe and Asia.
That’s sent Wall Street into a frenzy: Tesla shares surged 24 percent in the hours after the maker’s first-quarter earnings announcement – and doubling since hitting a low point late last winter. That’s bad news for the short-sellers who hold more than 40 percent of the battery-carmaker’s shares and who had been anticipating more bad news after Tesla’s unexpectedly steep loss during the fourth quarter of 2012.
Skeptics certainly have had reason to predict the worst, at least if they were watching the rest of the nascent electric vehicle market where, with rare exception, things have come unplugged.
The much-ballyhooed Fisker Automotive recently laid off three-quarters of its workforce and, during a hearing on Capitol Hill last month, company officials signaled bankruptcy may be in the offing. Battery-carmaker Coda recently filed for Chapter 11. Even the much-touted Chevrolet Volt has been losing momentum. Battery-car suppliers may be in even worse shape: Battery maker A123 was purchased by a Chinese maker after its own financial collapse.
There are a few bits of good news, such as the recent upturn in demand for the Nissan Leaf after the Japanese maker cut the price of the battery-electric vehicle and began production at a new plant in Tennessee. But for the moment, Tesla seems to be the battery-car market’s only real success story.
The Silicon Valley firm managed to claw its way into the black after a decade of losses, even though it had to cough up $13 million towards the $465 million federal loan it received as part of a controversial Department of Energy program to fund clean, alternative propulsion technology.
Things hadn’t looked nearly so good going into the New Year. The launch of the Model S went more slowly than expected at the old Toyota plant near San Francisco Tesla had purchased. But suggesting “our manufacturing processes stabilized,” Musk told shareholders that production is now running faster than expected, even as the number of man hours per vehicle has dropped by 40 percent. The maker sold about 10 percent more of the battery sedans than it expected during the first quarter – at a price well above its initial projections. In fact, Tesla has now dropped the base version of the Model S, focusing on longer-range – and significantly higher-priced -- versions.
For the full year, Tesla expects to produce about 21,000 sedans. Compared to most manufacturers, that number would barely show up on the sales charts, but it’s significant for the electric vehicle industry. And it could create even more woes for short-sellers and skeptics.
For all his bravado, Musk recognizes it won’t be easy to keep the moment going. As the front man for Tesla, he has taken a number of steps meant to “address some of the issues people have about electric cars” in recent weeks, including a new no-fault battery warranty that will cover any failure short of an owner intentionally destroying the lithium-ion pack. A new finance program allows buyers to trade the vehicle back in for a guaranteed price after three years. They can alternately trade up for a more expensive version of the sedan.
“I want to give people peace of mind,” explains Musk, who made his fortune with online payment system PayPal and who now runs the SpaceX commercial space delivery program.
Perhaps the biggest endorsement has come from the widely respected and closely followed Consumer Reports magazine, which this week gave the Model S a score of 99 on a 100-point scale, something no other vehicle has achieved in six years.
“The Tesla Model S is packed with technological innovation,” wrote Jake Fisher, director of Automotive Testing for the magazine. “It accelerates, handles and brakes like a sports car, it has the ride and quietness of a luxury car and is far more energy efficient than the best hybrid cars.”
Considering all the problems facing the battery-car market, the short-sellers likely aren’t about to give Tesla an easy pass. The maker is going to have to continue delivering in the quarters ahead. But if it does, that could be good news for its competitors, as well, a signal that there really is a place for the battery car in the U.S. market.
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