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Investors still worry over Model S demand/production and ways to keep costs down after the huge fourth quarter loss

Tesla CEO Elon Musk told analysts and reporters that his company expects to be profitable in the first quarter, but that didn't stop investors from sending shares down due to previous Tesla woes.

Not only did Musk say Tesla would turn a profit next quarter, but also mentioned that the automaker would meet demand for 20,000 Model S sedans for 2013. In addition, he showed that revenue grew 500 percent to $306 million and that he had plans to get Tesla's gross margins up to about 25 percent.

You'd think all of this would be music to investors' ears, but shares took a 6 percent tumble in after-hours trading. This was mainly due to the fact that Tesla had a huge fourth quarter loss of $89.9 million (compared to $81.5 million a year earlier) as well as concerns about Model S demand and a lack of understanding how Tesla will keep costs down.

Musk attempted to address investor concerns, saying that Model S reservations increased by 6,000 in the fourth quarter, which is a significant increase from 2,900 in the previous quarter. Also, Musk said Tesla will make 500 Model S' a week and hopes to ship 4,500 cars from the Silicon Valley factory this quarter.


To keep costs down, Tesla plans to get rid of part-time workers and keep full-time workers at 50 hours per week (and adjust only to meet shipping commitments). Also, with production increasing, Musk said suppliers are likely to give more competitive prices.

"We are not demand constrained," Musk said. "We are intentionally production constrained. We're on track to sell every car we make. We could say goodbye to every store and every salesperson (today) and still meet that target."

The Model S was named Automobile Magazine's 2013 Automobile of the Year, but recently had some issues when a journalist from The New York Times took a test drive this winter and reported a horrific venture. More specifically, he said that the Model S doesn't have the range Tesla said it does, and ended up on a flatbed truck at the end of the trip. Musk and the NYT journalist (John Broder) ended up feuding over the matter.

Sources: The Detroit News, Bloomberg BusinessWeek


Comments     Threshold


Neat info
By Mint on 2/21/2013 1:43:40 PM , Rating: 1
Pretty cool that, as a public auto company offering only one model, we get to know that the Model S is getting near 25% margins.

That's pretty decent for a new car company targeting a market much bigger than the tiny niches of companies like Ascari or Noble. There's a lot of well established competition in the $50-$100k performance sedan market.




RE: Neat info
By Reclaimer77 on 2/21/2013 5:27:20 PM , Rating: 3
How is that cool? Their margins should be WAY less considering their product qualifies for huge government subsidies. Wtf!


RE: Neat info
By Shig on 2/21/2013 6:03:14 PM , Rating: 2
25% is what they want by the end of the year. They improved from -17% gross margin to 8% gross margins in the quarter.

It was so low in the 3rd quarter because they sold almost no cars and were burning cash to get the factory ready for higher productions.

Based on the video I've seen of the factory, 25% gross margins should not be that difficult. Electric cars have fewer parts and much of the factory is now automated.

The craziest thing is that their stock price is still over 35$ as of writing this. That is insanely bullish, but then there's Elon.


RE: Neat info
By Reclaimer77 on 2/21/13, Rating: -1
RE: Neat info
By tng on 2/21/2013 10:03:08 PM , Rating: 2
quote:
Musk is rich. He should be selling these things at a near-loss.
He will be even richer if Tesla continues to do well and post at least consistent orders.

Also if Space X does well with commercial launches he will be even richer.


RE: Neat info
By toyotabedzrock on 2/22/2013 2:10:52 AM , Rating: 1
The subsides have worked in this case. He developed a car that will soon be profitable without the subsidy.

But it wasn't until recently. Now the subsidy is producing its second goal of artificially lowering the price so that the associated parts also start to come down in price.

The third goal is for this technology to spread to other automakers and lower priced cars.


RE: Neat info
By Mint on 2/22/2013 7:40:20 AM , Rating: 1
Tesla has $900M in losses to make up. It would be impossible to do that selling cars at a near-loss. 25% isn't an outrageous profit for this class of car, and BMW/Mercedes/Audi are probably making more in this category.

Musk is rich from his share of Tesla, SpaceX, and SolarCity. He doesn't have $1B in cash/bonds/real-estate to fund anything. If he did, he would have kept the company private and owned 100% instead of 29%.


RE: Neat info
By Paj on 2/22/13, Rating: 0
RE: Neat info
By tng on 2/21/2013 9:55:43 PM , Rating: 2
quote:
Based on the video I've seen of the factory, 25% gross margins should not be that difficult. Electric cars have fewer parts and much of the factory is now automated.
Interesting, I have driven by the factory a couple of times this week and it really doesn't seem that busy. When it was making Toyotas, the lots were packed and trucks were constantly coming and going.

If I didn't know that Tesla was still open I would almost think that it was closed.


RE: Neat info
By Mint on 2/22/2013 7:28:10 AM , Rating: 2
Toyota did gobs more volume at the plant, as they were making Corollas there.

Tesla can probably stock the cars mostly indoors since they wouldn't have filled anywhere near the whole plant yet, and the preorders reduce their need for inventory.


RE: Neat info
By Mint on 2/22/2013 7:22:13 AM , Rating: 2
This is GROSS margin, not operating margin, and he's only halfway there right now. Tesla will need at least 10% margin to cover non-unit expenses even with minimal new car development. Most car companies get 20% gross margin, and they have far higher volumes with much lower R&D; costs per car.

TSLA lost $900M since the IPO on R&D; costs and Roadster losses (needed to get the company's technology up to this point) that they have to recoup with the rest of the margin. That probably amounts to 100k cars that have to be sold to make a net profit. As well as things are going for Tesla, even that isn't a sure thing.

Without the subsidy, he'd need double that at the same MSRP, or he'd have to raise prices, reducing sales. The business plan changes drastically and the company probably doesn't even get off the ground.


RE: Neat info
By Mint on 2/22/2013 10:08:02 AM , Rating: 2
I should also clarify my "pretty cool" statement. What I meant was this info is usually heavily guarded for specific models.

We can also somewhat safely assume that the battery pack has a marginal cost of $375/kWh, because each 20 kWh adds $10k to the Model S price. We've heard rumors of this cost before, but this is pretty good evidence.


RE: Neat info
By tng on 2/22/2013 8:28:22 AM , Rating: 2
This is totally unrelated, but I have seen quite of few of these cars lately and they are rather good looking, in my opinion. If they could only get rid of that ugly front end on the Leaf they might sell more.


Chinese method to reduce cost
By siliconvideo on 2/21/2013 2:39:56 PM , Rating: 2
So in reality Tesla is reducing labor costs by forcing all full time employees to work 50 hour weeks effectively reducing the cost per labor hour by 25%. They also got rid of the part time works since if you increased their hours Tesla would have to provide health care for them or pay the Obamacare fine for not providing health plans for these part time workers who probably will go over the 30 hour limit.

Cheap labor is the key.




RE: Chinese method to reduce cost
By Shig on 2/21/2013 5:57:20 PM , Rating: 3
The sobering reality is that their factory really doesn't need that many humans at all. It's one of the most heavily automated factories in the world.

It's called overtime...some people actually like to work overtime because you can make an insane amount of extra money. They weren't working 50 hour weeks, they were working 68 hour weeks. No pain, no gain.

Every business in the world does the part time worker thing...God forbid everyone got healthcare.


A lot of cars
By Dorkyman on 2/22/2013 2:47:40 PM , Rating: 2
500 cars a week!? That's a lot of cars.

I think the jury is still out on this one. Will the company still be around in 3 years? I wish him luck, though.




PR work
By Beenthere on 2/22/2013 1:25:50 AM , Rating: 1
Tesla has always been a little too optimistic in everything they do. Unfortunately they are trying to sell a product that few people actually want and can afford. While it's a good effort on their behalf, they have lost considerable credibility IMO, from their overly optimistic forecasts.




By Brandon Hill (blog) on 2/21/2013 2:25:19 PM , Rating: 5
Huh? Tiffany did THREE articles on the road trip, including the data points cited by Musk, the original author's reply, AND the reply by a NYT Editor.

http://www.dailytech.com/article.aspx?newsid=29884
http://www.dailytech.com/article.aspx?newsid=29901
http://www.dailytech.com/article.aspx?newsid=29936

All Tiffany did in this article was just give a brief summary of the crapstorm that took place last week.


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