Tesla Beats on Earnings and Revenue, and Everything Is on Schedule

Tesla Model X

Tesla Motors was facing a lot of pressure to perform during the first-quarter of 2014 to satisfy analysts calling for meaningful growth while its production remains bound by capacity constraints and the supply of battery cells for its Model S sedan remains a trickle. While the company is still moving to fulfill orders here in North America, it’s having to set aside units for delivery to China and Europe. Tesla is bound; it has the ability and the legs to run (and fast), but is shackled by chains and a lock — the key for which it doesn’t hold.

Expectations for the first-quarter called for earnings 7 cents per share, down from 12 cents during the year-ago quarter, and revenue of $704.5 million, Tesla’s best quarterly performance figure ever, according to Bloomberg’s panel of analysts. Crucially, that’s without the zero-emissions credits, and represents a 25 percent leap over the same figure from the year-ago quarter. Projections are also calling for the delivery of 6,429 Model S cars to Europe and North America. The estimates are closely bound, ranging from a low of 6,200 to a high of 6,600. Tesla itself was aiming for 6,400.

As it turned out, Tesla beat on earnings with 12 cents per share, flat with the same period last year. It delivered 6,457 cars, just slightly beating out its own guidance, but impressively, it produced a record 7,535 vehicles, allowing it to fill its Asian and European pipelines. However, the stock is being dragged down in after-hours trading on Wednesday as Tesla, on a GAAP basis, reported a loss of 40 cents per share, or $50 million.

On a GAAP basis, it reported revenues of $713 million, handily trouncing even the rosiest of estimates and leading to a 27 percent gain year-on-year. That figure included $15 million in Toyota powertrain sales, and almost $12 million of regulatory credit sales, but excluded zero emission vehicle (ZEV) credit sales, as was expected. That’s an important factor, considering Tesla’s profits and revenues in the past relied on such sales.


With an ambitious projections in deliveries and production this year, outlook didn’t disappoint. “We expect to deliver about 7,500 Model S vehicles in Q2 as we move toward our goal of more than 35,000 Model S deliveries for the year. We also plan to produce 8,500 to 9,000 cars in the quarter, representing a 13 percent to 19 percent increase over Q1,” the company said.

Tesla was also able to nail a non-GAAP automotive gross margin of 25.4 percent, and 25.3 percent on a GAAP basis. “This represents a 20 basis point improvement in non-GAAP automotive gross margin sequentially, despite booking an unplanned $2 million reserve for underbody shield retrofits,” the company said. By the fourth-quarter, the company is looking at a 28 percent gross margin. Tesla one day hopes to rival Porsche in that regard; the German sports car maker enjoys some comfy 50 percent margins on its vehicles.

The company still says battery constraints will affect production in the second-quarter, but it should improve in the third-quarter. It hopes to start on construction of the Gigafactory this year, as a part of its $650-850 million CapEx budget.

Essentially, Tesla is making progress where it counts. It’s achieving what it needs to, and has shown that there’s sustained interest in its product. Further, aside from the GAAP basis loss — which was expected — there’s really nothing alarming in Tesla’s statement, and the company has started the year out with a solid foot forward.

We recently wrote about how Tesla was establishing itself as a major force not just in the auto industry, but in business over all. Even with the Model S — a spectacular car in virtually every measure — aside, the company is setting a new paradigm for how business is conducted. Here are a few of those reasons.

Tesla Model S

1. Customers come first

There are many aspects of Tesla that one can argue and complain about, but it’s hard to give it a hard time about its customer service. Take for example, if you will, the fires that plagued the media for weeks and sent the company’s stock into a nosedive late last year. In a time where safety concerns and potential recall risks are being buried for years before something is done, Tesla grabbed the issue by the horns and took charge of making things right.

It immediately reached out to the affected owners and launched its own investigation into the occurrences — the most concerning of which involved the cars hitting some substantial road debris that caused the battery packs to ignite — and, before the NHTSA could barely get a word in, it had issued some fixes (like an adjusted ride height) to minimize the risk of it happening again. Now, six months or so on, every new Model S that one buys comes with some extra titanium shielding to make the car even safer.

The situation was repeated — sort of, in the sense that a fire and Tesla were in the same space at the same time — when a garage where a Tesla was housed went up in flames in November. Naturally, everyone pointed to the car or its charging unit, and the local fire department ruled the cause inconclusive. Despite denying that it had anything to do with the car, Tesla sent out another over-the-air update, and even sent out replacement chargers with a new thermal fuse. Just in case.


2. It’s not afraid of a challenge

How do you deal with the near-complete and inherent lack of a fueling station network when you’re trying to sell electric cars? If you’re Tesla, you build them, and you don’t ask your owners to pay for the charge, making free cross-country travel a thing. It’ll take a bit longer, but it’s definitely a thing.

There are few greater challenges in the business world than building a nationwide physical infrastructure to enable your customers free travel. Can you imagine another automaker single-handedly building out a national gas station network? We can’t either. More impressively, Tesla is also building them out in Europe and Asia, just so electric car potential owners don’t have that excuse. Love Tesla or hate them, you kind of have to appreciate that kind of tenacity.

If that wasn’t ambitious enough, Tesla has been meeting challenges constantly, from facing off with local legislatures over its sales model to designing and building its own $5 billion battery factory to bring lithium ion cell production in-house. Remember, this company has just one car on the market, and it’s its first attempt at a passenger car.


3. Driving innovation

Few companies have managed to shift industry thinking in recent years more than Tesla Motors. Virtually every aspect of the company is innovative to some degree, from its sales channel, to its product, to how the company maintains its products once it’s out in the real world. No other company has achieved performance from a road-going electric car like Tesla has, and on top of it, it’s among the safest on the road. The Model S isn’t just a great electric car — it’s a great car that happens to be electric.

However, the car aside, Tesla itself has raised the standard of innovation in just about every way. Its factory uses robotic carriages autonomously following magnetic strips in the floor to move the chassis around for production. The way people buy a Tesla — online, or in Tesla’s retail locations — is a unique model in today’s auto industry (but more on that in a second.) Tesla’s guaranteed resale value means that the lease for the car is more like a rent-to-own situation. There’s no money down, and when the lease is up, the company will buy the car back for a guaranteed amount. Tesla has even innovated the way we lease our cars.

Finally, the Supercharing network. A major gripe against electric cars is there’s no supporting infrastructure to encourage long-distance travel — a hallmark American pastime. Tesla remedied this by not just developing a fast-charging network, but by deploying it as well — in three different continents. It’s also aiming to become one of the world’s largest producers of lithium ion battery cells, showing that it can innovate in its supply chain as well.

(Read the full story here.)