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Tesla Motors: The Dream Materializes

Monday - 3/4/2013, 11:19am  ET

I must confess to being a bit of a futurist. Technological trends and developments excite me, as they make modern life more convenient and impressive. I mean, think back for a moment. 2006 was merely 7 years ago; yet back then we had:

  • No iPhones or iPads.
  • Facebook and Twitter were just getting started.
  • Netflix allowed consumers to get movies at home, but only via mail delivery.
  • Amazon was far lest impressive than it is today.
  • People still drove Hummers.

For people of my generation, this feels like the dark ages. How did folks survive back then??

Today, it would seem that we're heading towards a more advanced and greener (i.e., energy efficient and eco-friendly) future, though we admittedly have stumbled along the way.

For me, one of the clearest signs of our advancement is the slowly growing viability of electric vehicles (EVs), spearheaded by Tesla Motors .

Founded by Elon Musk, the mastermind behind SpaceX and co-founder of Paypal (and probably the most awesome entrepreneur in the world after the glory of Sir Richard Branson), Tesla Motors designs, manufactures, and sells electric cars to consumers. Currently, there are only two car models available: the Tesla Roadster sports car and Tesla Model S luxury sedan, though the Roadster is no longer being produced.

"He simply changed the facts"

Unfortunately for Tesla Motors, they've had something of a bad month. On Feb. 8, The New York Times published a scathing review of the Model S. Apparently, the Times reviewer was taking the vehicle on a test drive when the vehicle shut down and had to be transported on a flatbed. Elon Musk responded with a data-loaded blog post that insinuated the NYT reviewer had conspired to make the test fail. Musk's exact words:

When the facts didn’t suit his opinion, he simply changed the facts. Our request of The New York Times is simple and fair: please investigate this article and determine the truth. You are a news organization where that principle is of paramount importance and what is at stake for sustainable transport is simply too important to the world to ignore.

The Tesla Motors fanbase (which is apparently quite avid) fired back at the Times. The whole debacle looked more like the usual online political internet fight rather than the usual corporate PR debacle. By now, it has been more or less settled.

More recently, on Wednesday Feb. 20, Tesla released it's quartlerly earnings report. It wasn't a bad quarter, but neither was it close to "good:" there was an EPS loss of -$0.65 compared to the -$0.53 or so that analysts were expecting. Revenue came in at around $306.3 million, which beat estimates by around $7.4 million. Deliveries were 2,400 for the quarter and about 2,600 for the year, below company expectations.

As a result of all this news, the comapy's share price went off a cliff, from around $39 per share to $34-$35 per share, triggering a short sale circuit break. It didn't really help that the guys over at Bank of America saw fit to downgrade Tesla's stock to "Underperform" with a price of around $30. Nor the fact that some people who put down $5,000 to reserve a Model S were suddenly having second thoughts.

Why would you ignore the shareholder's letter?

I can understand why people would dump shares based on these results, bu doing so ignores some very good news that came out with the earnings report. In the shareholder's letter, Musk delivered some things that investors had been looking/hoping for: revenue had surged 500%, he set a framework for getting gross margins up to 25 percent, and he swore that Tesla would actually bring in a proft next quarter. He also addressed some topics in the conference call with Wall Street analysts, including:

  • Heavy marketing in Europe will begin, followed up by the same in Asia.
  • Costs were excessive last quarter due to paying a lot of overtime last quarter in order to meet shipping commitments. Manufacturing is being tuned to scale this down and dismissing part-time workers.
  • Costs are also expected to be lowered by updating it's logistics department. At one point, Musk mentioned: "And when you fly something, it can cost as much 10 times what it costs to ship it by sea or rail or truck, particularly if it is heavy. And so, we had to do some dumb things like fly tires from the Czech Republic like (indiscernible) that was, like one of the -- I want to punch myself on the face for that one."
  • Lower supplier costs are expected now that production is stepping up.
  • Expansion of Tesla's network of free-charging stations along highways is set to continue at a solid pace.
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