Tesla back in the black despite red-ink forecasts

Image: Tesla
The strong numbers from Tesla could leave egg on the face of skeptical analysts, some of whom had issued sharply negative reports following Tesla’s first-ever profit during the January to March quarter.

Plucky plug-based automaker Tesla Motors delivered another surprise with its second-quarter earnings announcements as it eked out a modest profit rather than the loss analysts had been forecasting.

After a sharp sell-off during the day that saw Tesla shares plunge by 5.5 percent before the closing bell on Wall Street, investors rapidly reversed course, almost immediately sparking a 14 percent gain in after-hours trading. The strong numbers could leave egg on the face of skeptical analysts, some of whom had issued sharply negative reports following Tesla’s first-ever profit during the January to March quarter.

For the second quarter, net income jumped 70 percent, on a non-GAAP basis, to $26 million, translating into a 20 cent-per-share number, excluding one-time charges. The consensus forecast had been for a 19 cents loss.

Despite the better-than-expected earnings, Tesla CEO Elon Musk has been cautioning that the California-based start-up has a number of challenges to focus on and that earnings are not at the top of the list. That said, boosting production of the maker’s Model S clearly helped the bottom line, overcoming a significant reduction in Zero-Emissions Vehicle credits that had been expected to punch the company into the red. 

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Tesla was able to boost second-quarter production up by a whopping 25% over the previous three months, to 500 vehicles a week. The original company forecast was for 4,500 deliveries but it appears to have reached 5,150.

In turn, that helped the maker boost its gross margin (again, on a non-GAAP basis) to 22%, with a fourth-quarter target of 25%. Revenues for the April – June quarter reached $551 million, nearly 40% above the consensus forecast of $395 million.

Meanwhile, the maker entered the third quarter with nearly $750 million in cash and – perhaps more significantly – without a penny in government debt. It received a wildly popular response to its recent stock offering that helped it pay off a federal loan meant to spur high-tech automotive development. The money raised will now help Tesla fund development of the Model X crossover expected to market late in 2014, as well as a lower-cost, more mainstream model that CEO Musk has been promising. 

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Musk, an Internet pioneer who also serves as CEO of the rocket launch company SpaceX, and as chairman of SolarCity, has repeatedly defied conventional wisdom – and the fact that few other manufacturers have had any luck gaining traction in the nascent battery-car market.

He has ordered a number of steps aimed at improving the appeal of a technology hobbled by high costs, limited range, long charging times and uncertainty about battery life. That includes what he described as a “bullet-proof warranty program when it was announced earlier this year. Tesla is also in the midst of setting up a nationwide network of high-speed “Supercharger” stations and has demonstrated plans to also permit rapid battery swaps.

In terms of price, it actually dropped the lowest-cost model of the Tesla Model S earlier this year as the vast majority of buyers opted for more expensive but longer-range versions – which has also helped buoy margins and net income. 

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Tesla’s numbers – and, some suggest, Musk’s infectious enthusiasm – has clearly worked with investors. The stock has been running as high as $145.73 in recent days, up from a 52-week low of $26.86. And despite the bobble it took earlier in the week when media reports suggested the maker would fall into the red for Q2, investors have generally shrugged off negative forecasts.

That included one report released by Goldman Sachs last month that set an upper-end value closer to $83 a share. Meanwhile, Donn Vickrey, of Gradient Analytics warned that Tesla earnings deserved a grade of “F,” warning that, “the company’s results have been driven by nonrecurring boosts and accounting gimmicks, all of which are either unsustainable or purely cosmetic.”

Considering the continued uncertainty about the battery-car market and the growth Tesla will likely continue to need to support the more upbeat grade investors are handing out, it’s still far from certain if the maker can continue to build momentum. 

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