Tesla Lost Some Spark in 2014: Will This Year Offer a Needed Recharge?

Source: Tesla
Source: Tesla

After months of disappointing financial news from Tesla, the company reported big losses in 2014 as the company continues to invest in its future. In the fourth quarter alone, Tesla lost $108 million, compared to an overall loss of $74 million for all of 2013. The company took a beating in the fourth quarter against a strong dollar, low oil prices, production delays, and trouble catching on in Asian markets. This added up to make 2014 one of the most difficult years in recent memory for the company, with an annual loss of $294 million.

Until yesterday’s announcement, Tesla had surpassed industry expectations for the past seven quarters, so this announcement is a major disappointment for the company, as its stock plunged in the hours after the report. The company is in a transitional phase, and sales are sluggish as it continues to expand and develop two new models in an increasingly tough market for electric cars. Tesla has a unique method of reporting sales numbers, and while the Big Three report sales to dealerships, Tesla reports direct sales to customers, giving unique insight into the current status of the company.

Photo by Kevork Djansezian/Getty Images
Source: Kevork Djansezian/Getty Images

The company exceeded production expectations by building 11,627 Model S cars in the fourth quarter (the brand’s only car in production), and reaching its original manufacturing goal of 35,000 cars in 2014. Still, the fourth quarter delivery of 9,834 cars meant that 31,655 cars were delivered to customers for the year – well short of their 33,000 delivery goal. Tesla’s Chief Executive Elon Musk cited “customers being on vacation, severe winter weather, and shipping problems (with actual ships)” as reasons for the fourth quarter shortfall. According to the company, 1,400 cars built last quarter will be delivered in the first quarter of 2015.

Source: Tesla

Many of Tesla’s recent woes have been attributed to their slow start in the Chinese market. With some Chinese buyers publicly protesting repeated delivery delays, and reports of Musk’s frustration over weak sales, Musk spent much of the investor’s conference call reassuring shareholders that Tesla can perform in the Chinese market. In the shareholders’ letter, he says that the company is “concentrating their efforts” on the cities Tesla is already established in, and announced a new Model S with “executive rear seats and second row center console” to compete with the long-wheelbase executive cars that are popular in the Chinese market.

Despite setbacks in China, the company continued to grow in other markets. A right-hand drive version was released to customers in Europe and Hong Kong last summer (again with delays), and the company launched in Australia in the fourth quarter. Overall, 45% of deliveries went overseas, and Musk says the company doubled the number of international sales and service centers.  With Norway as Tesla’s second largest market, the company is looking to aggressively expand further into Europe in 2015.

Tesla Model S Napa Valley
Source: Tesla

As the company’s most important releases of 2014 came in the fourth quarter, Musk claims the “one-time manufacturing inefficiencies related to the introduction of P85D and Autopilot functionality” were a major factor in the delivery shortfall. The Autopilot function is an active cruise control system that analyzes traffic in real time. With software updates coming in the first quarter of 2015, Autopilot-equipped cars will gain increased speed and efficiency, and new software that learns a driver’s commuting pattern and climate control preferences.

The dual-motor Model S P85D caused a sensation when it was unveiled in November. A front motor was added to the Model S, which transforms the luxury sedan into a 691 horsepower an all-wheel drive beast that can compete against some of the most formidable performance cars in the world without sacrificing any of the car’s handling characteristics or range. While the new dual motor system gives the P85D a serious performance edge, it serves an even more important purpose for the company as a testbed for the new Model X.

Tesla Model X Front
Source: Tesla

Between the massive interest created by the P85D and the long-awaited Model X, Tesla expects to deliver 55,000 vehicles to customers in 2015 — a whopping 70% increase over 2014 deliveries. The X is an all-new dual-motor seven-passenger crossover with towing capacity and roof-hinged “falcon-wing” doors that allow clear access to the third-row seats. With an expected 230-mile range and a price starting below the Model S, the X could be a much-needed volume seller for the brand, and Musk is confident that the X will launch in the third quarter of 2015. While the car’s release date has already been pushed back several times from its original early 2015 target, recent spy photos combined with Tesla’s announcement that over 30 beta versions are being tested mean that Tesla is taking this target date very seriously. Tesla already has 20,000 customers lined up for the Model X, so the sooner the car reaches the market, the better.

On top of product development, Musk’s letter gave important updates on the new Gigafactory being built outside Reno, Nev. The Gigafactory, Tesla’s $5 billion lithium-ion battery factory is the key to Tesla’s goal of selling 500,000 electric cars by 2020. In partnership with Panasonic, Tesla is on track to begin installing machines at the Gigafactory by the end of the year, and battery production is expected to start in 2016. Aside from the Gigafactory, Tesla is retooling their Lathrop and Fremont, Calif. plants in anticipation of the Model X launch, and manufacturing improvements make the company capable of building 2,000 cars a week by the end of the year.

Tesla Model X
Source: Tesla

In many ways, Tesla is the most unique car company in the world. Despite its high-profile status, it’s still a very small automaker. They sold 31,655 cars in all of 2014 – or roughly the number of Camrys Toyota sold in the U.S. in December alone. While it has changed public perception of electric cars, it’s still a boutique company selling only a high-end luxury sedan. In order to succeed, Tesla needs to begin hitting their sales goals, the Model X needs to enter production sooner rather than later, and the company needs to speed up the development of the Model 3, the sub-$40,000 compact electric car designed to be Tesla’s first mass-market vehicle. While the news from Tesla is not good, it doesn’t necessarily spell big trouble for the brand. The company is on track to meet many of its goals, and Musk’s announcement that the company won’t be profitable until 2020 indicates that the company is well aware of its shortcomings. Tesla can still change the world – it just needs to start selling some cars.