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Investment community gives Tesla Motors vote of confidence

May 11, 2012|By Jerry Hirsch
  • Tesla says it will start selling its battery-powered Model S sedan in June, a month ahead of schedule.
Tesla says it will start selling its battery-powered Model S sedan in June,… (Tesla Motors )

DeLorean Motor Co. never had a future to get back to. Tucker Corp. got torpedoed. Fisker Automotive doesn't seem to have good karma.

Launching a new auto business and building a brand in the U.S. is no simple task.

But inch by inch, electric-car maker Tesla Motors Inc. seems to be doing just that.

"Tesla continues to show its ability to manage expectations and deliver on what it promises," Morgan Stanley Research auto analyst Adam Jonas wrote in a report to investors.

Tesla "surpassed our expectations as momentum heading into the company's summer Model S launch continues to build," analysts at Barclays Capital told their clients.

Both investment houses were reacting to Tesla's first-quarter earnings report this week.

Tesla said its first-quarter loss widened to $89.9 million, from a $48.9-million deficit a year earlier, as it spent more on car development expenses. Revenue dropped 38% to $30.2 million.

Normally those aren't stellar numbers. But Palo Alto-based Tesla is still essentially a start-up and burns a lot of cash. What grabbed the attention of analysts was the announcement by Chief Executive Elon Musk that the company is advancing Model S sedan deliveries to June from July and that it has more than 10,000 orders for the battery-powered car.

The sedan offers seating for five adults and, in some configurations. room for an extra two children's seats. It also is to have some speed, with an anticipated zero-to-60 acceleration of less than six seconds.

The announcement alleviates investor jitters that the automaker might be facing some unforeseen roadblock in launching production and getting the car onto the road by its promised time, Barclays Capital noted.

Model S sales also will start bringing badly needed cash into the company. The price of the Model S ranges from $49,900 to $97,900, depending on its mileage range and options, after a federal $7,500 tax credit for electric vehicles. Early sales will be of the most expensive model.

Morgan Stanley forecasts that Tesla will sell close to 3,000 cars this year, 16,000 next year and 19,000 in the following year.

That would make Tesla the first U.S. auto start-up in many decades to launch volume production, though it would still be a tiny fraction of the approximately 14 million autos expected to be sold annually nationally for the next several years.

"We expect Model S to be a commercially successful product," that will trigger sales of an SUV built on the same platform and other derivatives, the Morgan Stanley report said.

Tesla's sales could reach $600 million this year, but there is no room for error.

Any "inability to execute its product schedule would yield a severe cash crunch," Barclay’s Capital said.

Morgan Stanley also tempered its enthusiasm, saying, "In our opinion, Tesla could use a few hundred million of extra cash in their coffers.”

Tesla shares closed Thursday at $32.96, a 94% gain from its initial public stock offering price of $17 in June 2010.

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