Tesla Finally Swings to a Profit

Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Perhaps the greatest challenge of our time is weaning ourselves off our crippling dependence on fossil fuels, and moving towards renewable energy sources as a means of fulfilling our power needs. Cars are one of the biggest guzzlers of these fossil fuels, and as such, electric cars have been getting a lot of attention over the last few years. Tesla (NASDAQ: TSLA), headed by Paypal’s Elon Musk, is one of the companies on the frontier of electric vehicle manufacture. After three years of losses, the firm has finally announced a quarterly profit. This is a very important development for the company, and ultimately, the viability of producing electric cars.

Company Overview

Tesla Motors engages in the design, manufacture and marketing of electric vehicles and powertrain components. The company sells its products through its 32 stores in America, Europe and Asia, as well as over the internet. The company has less than 3,000 fulltime employees and a market cap of around 5 billion dollars. The stock is up some 18% in the last twelve months, much of this gain following the most recently quarterly earnings report.

First Quarterly Profit

Since making its market debut in 2010, Tesla Motors consistently posted losses. This isn’t necessarily unusual for startups, and especially for those in a pioneer industry like electric vehicles. However, annual EPS also missed estimates in 2010 through 2012, recovering somewhat in 2011 before dipping again in 2012 to a loss of $3.20 per share. Finally, the company reported guidance for first quarter of full profitability on Monday, sending shares flying 16%.

The driver for these positive earnings was the company’s flagship Model S sedan. The Tesla model S scooped up the Car of the Year award, beating out some high-profile contenders such as Porsche and BMW. Sales for this model came in at over 4,750 vehicles, topping the previous guidance of 4,500. The company is now expecting a slight first quarter profit on a GAAP and non-GAAP basis. The company furthermore announced on Tuesday its plans for a financing program, which they hope will make it easier for consumers to be able to afford one of these cars.

Contrasting with this sales report was the news that electric vehicle sales for a number of other EV manufacturers dropped sharply in January, with GM’s (NYSE: GM) Chevy Volt sales down 57% and the Toyota (NYSE: TM) Prius Plug-In down 36%. According to GM officials, the drop in sales was largely attributable to the December spike, when many consumers bought a new vehicle to enjoy 2012 tax benefits. Toyota officials on the other hand blamed the drop on model changeovers that limited the amount of vehicles up for sale. It is important to note that the Volt and the Prius Plug-In are not fully electric vehicles, but gasoline-electricity hybrids, whereas the Model S is indeed a fully electric vehicle.

Competition

The electric vehicle and hybrid space is obviously getting more crowded, as more and more manufactures have wizened up to the importance of this type of offering. The price tag of the Model S may be one of the biggest hurdles for consumers. Whereas a Volt can be had for around $40,000, and the Prius Plug-In starts at $32,000, you won’t get a new Model S for less than $70,000. On the other hand, the Model S is said to have triple the range of competitors at about 265 miles, as well as luxury interior and large passenger capacity. The two hybrid competitors mentioned here don’t have much full-electric range to speak of, both topping at around 40 miles. In terms of fully electric competition, the world’s bestselling EV’s are the Nissan Leaf, with nearly 50,000 units sold in 2012, and the Mitsubishi i-MiEV, with around 27,000 units sold.

The bottom line

With Tesla’s first quarterly profit since becoming a publicly traded company, it appears as if the company has turned a corner. This is not only good news for Tesla Motors, but also for the viability of fully electric cars as an alternative to traditional gasoline powered vehicles. While the Model S is clearly an up-market product, reflected in the hefty price tag, the increased interest in the vehicle is encouraging. In any case, the new financing program should make it easier for consumers to access a Model S. It will be very interesting to see how this company performs over the rest of the year.


Daniel James has no position in any stocks mentioned. The Motley Fool recommends General Motors and Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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