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Is Tomorrow The Most Important Day Ever For Tesla Motors?

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2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

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It's never dull over at Tesla Motors, but tomorrow is a particularly important day.

It may, in fact, be the most important day in the electric-car maker's history.

That's because after the stock market closes, Tesla Motors [NSDQ:TSLA] will give the first hints about whether it could genuinely become a profitable independent carmaker.

At 5:30 pm Eastern time, the company will hold its quarterly earnings call to discuss its Q4 financial results from October through December, as well as its full 2012 results.

Tesla is widely expected to have lost money for the full year 2012. It was a year of gearing up and getting its Model S electric luxury sport sedan into volume production, and that costs money. A lot of money.

But for the first time since its founding almost 10 years ago, Tesla's financials will let analysts pore over the costs and revenues of running the Model S production line at its full capacity of 400 electric cars a week.

That happened around New Year's Day, so the three-month financials won't reflect sustained full production. Those numbers will have to wait til the Q1 results call in April.

But financial analysts will want to answer many questions as they tear into Tesla's numbers, including:

  • How many Model S cars did Tesla build by December 31?
  • How many did it actually deliver to paying customers?
  • What was the revenue realized for those sales, versus the cost of building and delivering the cars?
  • What average sale price for 85-kilowatt-hour cars does that reveal? 
  • How does the company expect the start of production for 60-kWh versions to affect its results?
  • How many reservations does Tesla have for the Model S from the U.S. and from Europe? For its next product, the Model X electric crossover?
  • What percentage of reservations translate into actual sales?
  • Does the company seem to have enough cash--or can it raise enough--to get it to profitability?

2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

2012 Tesla Model S beta vehicle, Fremont, CA, October 2011

Enlarge Photo

To which we'd add:

Tesla Motors has lost money continuously since it was founded, as many startups do before ramping up to full production and sales.

CEO Elon Musk said that the company was profitable for the month of July 2009, a feat not since repeated--and not verifiable by the public, since Tesla was then privately held.

Some analysts have speculated that the brief period of profitability was necessary to qualify for $465 million of low-interest loans from the Department of Energy, which Tesla had been granted just two weeks earlier.

In early December, Musk tweeted that Tesla had been "narrowly cash-flow positive" for the week. He has not repeated that claim either.

'Revenge of the Electric Car' premiere: Tesla Motors CEO Elon Musk on red carpet

'Revenge of the Electric Car' premiere: Tesla Motors CEO Elon Musk on red carpet

Enlarge Photo

Automaking is a brutally expensive, very complex, and time-consuming industry--which is why entrepreneurs rarely dive into it, preferring products with lower capital costs and faster potential payback curves. Software, for instance.

But so far, the stock price of Tesla Motors has risen to roughly double the $17 price at which it was issued in a successful initial public offering in June 2010.

And the company is valued at multiples more likely to be associated with high-flying software startups than automakers.

One confirmed Tesla skeptic points out an intriguing way to assess Tesla on the popular investing blog SeekingAlpha (although his math is off by an order of magnitude).

If Tesla were valued at the same multiple for each car it sells as Ford [NYSE:F], it would have a market capitalization of $175 million--not its current $4.2 billion. (The author wrote $17.5 million, which was wrong.)

Profits and losses and cars, oh my.

Tomorrow afternoon will be the first chance for investors and shareholders to weigh in on the company's first real financial results as an operating carmaker.

What will the market say?

Leave us your thoughts in the Comments below.

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Comments (39)
  1. This headline is one year too soon (or the answer is an obvious no!). Next year this time we will know how profitable a full year of presumably full scale production of Model S really is for Tesla and whether demand for this product and Model X stays strong. That should be telling about Tesla's long term chances of success unlike tomorrow's numbers which bear on a quarter in which Tesla was still in the process of ramping up production.

    To get some insight in reservation numbers and confirmation rates however could be interesting but only if they deviate a lot from unofficial numbers that are circulating.

    Seeking Alpha=LOL of course. Just childish manipulation, nobody shares info of any real value obviously.
     
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  2. @Chris: Thanks for the comment, which raises a very fair point. But as you know, investors and analysts will parse the numbers for directional info. Your comment made me realize, however, that I'd left out one additional Q that both groups will focus on tomorrow:

    "Does the company seem to have enough cash--or can it raise enough--to get it to profitability?"

    Full disclosure: I added that to the bottom of the list just now.
     
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  3. @ John Voelcker: Actually I think you already covered that Q when you wrote:

    "What was the revenue realized for those sales, versus the cost of building and delivering the cars?"

    This is the cashflow and in its wake the profitability issue. Presumably being at target production rate the company is per Q-1 this year cashflow positive and in no further need of cash infusions, at least not to fund Model S production. Too bad for investors Q-4 2012 ramp up phase numbers may not be too helpful to determine Tesla's cashflow position at target production.
     
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  4. @Chris: I would differentiate between the Qs of whether Tesla is making a per-unit profit on each Model S and whether the company as a whole is generating enough cash to support not only production but also the overhead of its staff, the development, engineering, and testing of new products, and all the rest ... the "keeping the lights on" stuff.

    I'm not a financial analyst, so I don't weigh in on those issues, though occasionally I'll report on opinions from more informed analysts that touch on those questions.

    BTW, remind me again: Are you a Tesla shareholder? An owner? Or simply an enthusiast? Just curious.
     
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  5. Elon Musk once said Model S would be cashflow positive at 8K units. They are headed for 20K units this year so at this point I can't see any clear indication of Tesla needing to raise more cash in order to avoid a cash crunch.

    Developing new products costs money too though of course so Model S production needs to show the sort of numbers that keep investors interested. We'll see one year from now, but the signs are all good so far.

    As for me: I'm just a seeker of truth in a world where that particular commodity is very hard to come by...
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  6. Will not be able to tell what the per-unit profit is until the company ramps up production to close to an optimal level. They've talked about 25% gross margin, but haven't yet gotten close (understandably) and have waffled about when they think that will happen from a time or milestone perspective. It's also hard to judge not just because the product is novel, but because the mfg process is novel also. In the prior quarter, they struggled with their supply chain, so I wouldn't be surprised to hear if they did in 4Q as well. All that said, the stock is richly valued, so I'm not sure they can realistically post numbers to support this level of hype.

    They're also headed for over 20k units. I'm not worried about cashflow in 2013.
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  7. Like I mentioned in my initial comment: data on reservation numbers and confirmation rates could be interesting if they deviate a lot from unofficial numbers that are circulating.

    Turns out that's exactly what's Bloomberg is focussed on too and and what they found out is rather alarming at first glance. If they are right that cars ordered today can be delivered in 4-6 weeks indicating a backlog of merely 2400 units than that would be the first sign of trouble I'm aware of. In a market where 40% of Tesla's stock is shorted all negative news should be considered suspect though so we'll see....Never a dull moment over at Tesla Motors!

    Source: http://stks.co/hMTJ
     
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  8. I'll agree that limited info can be gleaned now since the previous quarter still had a limited production run. Don't get me wrong, there will some info, of course, but assessing Tesla's chances of survival or even short-term profitability seems a little bit of a stretch right now.

    I'll be satisfied if the basic numbers are close enough to validate previous claims by Musk. Otherwise, I'm more interested in the results in 2014 and in the short term, in cash flow and other metrics.

    Not to say that the data this week isn't critical, just that I personally want to see much more than a quarter of the Model S production included.
     
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  9. Real question is, can they find 20k buyers, year after year, for such an expensive car. The answer won't be known for sometime.
     
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  10. Actually there is lots of things Tesla can do to keep interested in Model S going like:

    -Doing variants like Model X (basically a taller version) or maybe the stationwagon someone designed recently and was received with much enthusiasm
    -midlife upgrade: the dashboard is somewhat controversial and seems to miss the refinement (European) customers really want
    -More options: trinkets like adaptive cruise control, head up displays and other stuff people shopping in this class think they need but Tesla can't supply yet
    -Bigger battery option; next step: 100KWh.
    -Investing in the supercharger network will make the car gradually more practical for a wider audience
    - More cars on the street means more people will consider Model S a serious option
     
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  11. Please add to that list of things Tesla can do to keep interest in Model S going:

    -advertise.
     
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  12. ...and finance and lease options. Finance is what drives carsales.
     
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  13. The thing is with "variants", they are counting on ~30,000 per year, so that doesn't make the task much easier.
     
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  14. Depends on the extra cost of doing a variant. Model X is over 60% Model S so my hunch would be it could pick up some of the slack of Model S once the time comes and needs to take sales considerably beyond 20K units to keep up profitability. A stationwagon variant would take a lot less extra retooling though so less extra sales would be required.
     
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  15. Seriously, only thing that can expand the market is to reduce price. Not something they can afford to do.
     
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  16. Yes, Audi could sell a lot more A7s, Jaguar could sell a lot more XFs, BMW could sell a lot more 6 series grand coupes and Mercedes could sell a lot more SLS's if they reduced price. Any idea why they don't?

    Fact is: a substantial part of Model S is the battery and despite that factor it can compete with the cars mentioned above right now. Battery prices are dropping though so Tesla is becoming more of a threat to the German überwagens everyday.
     
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  17. Great questions, but think we'll have to wait til April get more balanced & insightful answers as Tesla continues to establish its' operational rhythm. The quarterly earnings call will confirm one significant number; Model S accumulated sales (in quarter) vs. Roadster total production. Definitely it's a milestone quarter for Tesla!

    It is not fair to compare "If Tesla were valued at the same multiple for each car it sells as Ford". Ford, GM, Honda, Nissan-Renault, Toyota all produce at multiples of millions of vehicles; better to compare to manufactures producing at less-than 100 thousand units (globally) per year. The economics of scale (production, market, technology, etc) need to be relevant before such comparisons can be made.
     
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  18. Profitability is all about competition. Less competition means greater profits. At this point in time Tesla has no competition in its market segment. But this is due to change in the near future.
    What stock analysts will worry about is that , for Tesla, it gets harder from this point going forward. Like the problems now engulfing Apple, obliterating its stock, all roads lead downward for a company at the top, especially one with no
    intrinsic (patented) technological advantages. Tesla cannot control access to either its electric motors or batteries, the only important parts that differentiate EV versus non-EV road warriors. We won't know anything for sure until competition arrives. Current data is mostly meaningless as a future guide.
     
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  19. "Tesla cannot control access to either its electric motors or batteries, the only important parts that differentiate EV versus non-EV road warriors."

    1. Most unfamiliar with Tesla overlook key groundbreaking technology that has been deployed. Model S is one of few vehicles since EV1 with an all aluminum body and production in thousands. Major design & production challenges were overcome to make this a reality. This alone is a differentiator.

    2. Tesla is first vehicle with virtually a buttonless cockpit. An accomplishment similar to Apple's 1st buttonless phone.

    3. Vehicle Infomatics: level of monitoring, deployment of near-time updates/customization.

    These are just a few differentiators not unique to electric vehicles… but are for now.
     
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  20. @Brian: To your first point ... the Audi A8 and Jaguar XJ have each been made almost entirely of aluminum for years now. The new 2013 Range Rover is as well. Their collective production dwarfs Tesla's.

    You did say "one of few," but Tesla might find it hard to suggest that this is really a key differentiator from other high-priced luxury brands. Now, if they could do that for a $30K vehicle, that might be a different story. But can they?
     
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  21. Aluminum ? That is so 20th century. We all now want carbon fiber ;-)
     
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  22. Your right, however aluminum has many lives. The jury is still out on how to recycle carbon fiber if it can be done at all.
     
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  23. It's just another earnings day, 4Q earnings will be no more or less special than any other earnings report and investors have a longer time horizon on this stock. That said, I'm guessing the stock will be down, simply as its been run up so much heading into the quarter. "Buy on the rumor, sell on the news."
     
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  24. What amazes me is that, despite a series of mistakes -- not the least of which is forgoing the only sales channel that can quickly and legally put Tesla's cars in front of everyone in America -- Tesla fans and media alike aren't calling for Elon Musk's head.

    I wonder what it will take - another year of poor financial performance? Another round of reviews that point out the obvious limitations of Tesla's core product? Another "revolutionary" business decision that compromises Tesla's long-term success?

    Here's my question to you John: How bad do the financial results have to be before someone says Musk should step down (besides me, that is)?
     
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  25. @Jason: Not at all clear that it's in Tesla's interest to "put Tesla's cars in front of everyone in America" since they will not appeal to the mass market with a starting price of $60K.

    Musk's views of existing auto dealers, who make all their profits selling gasoline cars, is quite well documented by now. You view it as mistaken, clearly.
     
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  26. True, but the plan isn't to make the Model S forever, is it?
     
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  27. The car is currently sold out. No national ad campaign, no celebrity spokesperson, no superbowl spot, no tie ins, no splashy print ads, no viral campaign, nada. Let's repeat, the car is currently S O L D O U T!!!!

    The factory can't make em any faster, even Rip Van Winkle knows that :)
     
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  28. And, Musk obviously serves at the pleasure of Tesla's board of directors. People can say he should step down until they're blue in the face, but if the board has confidence in him--or he has leverage over them--it won't matter.
     
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  29. If Tesla fans want the company sold for change to a larger auto maker, they should definitely root for Musk to be replaced. If they want to witness the birth of a new auto maker -- and I admit that success is not yet guaranteed on that front -- they should stick with the visionary genius who has gotten them this far.
     
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  30. Respectfully, I think you've got it backwards. If Tesla ultimately wants to be acquired, the smartest thing they can do is to stay away from a dealer network...which could easily explain Musk's decision to avoid dealership entanglements. However, that's not what he's said.

    Could this be a classic example of doing one thing and saying another in preparation for an inevitable acquisition? It would certainly match Musk's history, but I think he - along with Tesla fans - want something bigger.
     
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  31. Yes Musk wants something bigger: he wants to write automotive history. That means holding on to Tesla so it remains a disruptive, cutting edge company that forces the rest of the industry in a direction it isn't in a hurry to take yet, comfortable as it is with the century old ICE business model.

    Sell now to another car company and Tesla will become just a badge for the niche plug-in products that company will introduce fitting the schedule and agenda of a company that's mostly interested in doing ICEs until the oil runs out.
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  32. @ Jason: tomorrow we should get some insight in the number of reservations and confirmation rates. That should give an indication about whether Tesla's innovative sales approach really works or not. Since Tesla sold almost as many EVs as GM (Volt) and Nissan (Leaf) combined through their traditional ICE vehicle sales channels last month my hunch would be it really works.
     
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  33. Since the cars ( with the exception perhaps of some for PR purposes) are all made to order I would think the delivery number would be very close to the production number.
     
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  34. Last month was a poor example. S is just ramping up - while Leaf is between model change, Volt production is just restarting.

    Let us talk a six months from now and see where we are.
     
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  35. At the end of the day here, we're talking about 20k cars that they have to produce in 2013. That's not a humongous number, in fact it's relatively small for a mass-market premium segment production car. I would guess that they'll have 15k reservations at the end of 4Q after the net additions in the quarter, and that's already 75% of their intended production run in 2013. Ultimately, I think they will produce more than 20k Model S cars this year.
     
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  36. There are more comments in this thread
  37. Regardless of "earnings", I think Tesla won this one already:

    http://www.hybridcars.com/new-york-times-cedes-model-s-range-dispute-to-tesla/
     
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  38. "If Tesla were valued at the same multiple for each car it sells as Ford [NYSE:F], it would have a market capitalization of $175 million--not its current $4.2 billion. (The author wrote $17.5 million, which was wrong.)"

    difference, is the margin on each unit. Ford is mostly selling low margin units, in a tough competitive space, Tesla sells high margin units, the key is what's the critical mass.
     
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  39. I remember the first saftey test of Fords model T. The saftey manager had george demonstrate the newest safety feature. George got in and drove the FORD model 'T' at a brick wall. The cars 'new bumper' hit the wall and just bounced back. Everyone rushed to see the amazing new technology bumper. Amazed that there was no damage at all to the bumper or to the car. Amazing they all seemed to say. However, there were no seat belts invented at that time so George had flown out of the front of the car and also smashed up against the wall. The safety manager at FORD told george to get up off the ground and take the car back to the shop. so he did.
    So requirement a hundred years later, now, are much more strict than then a hundred years ago
     
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