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Tesla results renew worries about its long-term viability

Tesla Motors reported another good-not-great quarter, renewing concerns about its ability to produce enough electric vehicles to sustain the firm long term.

February 20, 2013|By Andrea Chang and David Undercoffler, Los Angeles Times
  • Tesla plans to ramp up the introduction of its Model S.
Tesla plans to ramp up the introduction of its Model S. (Tesla )

Tesla Motors Inc. reported another good-not-great quarter, renewing concerns about its ability to quickly churn out enough electric vehicles to sustain the company for the long term.

The company plans to ramp up the introduction of Tesla Model S cars to consumers worldwide, saying it was "on a journey" this year to expand the line and turn profitable, Chairman Elon Musk and Chief Financial Officer Deepak Ahuja wrote in a letter to shareholders Wednesday.

"Our intention is not to make customers wait six months for a car," Musk said in a call with analysts. "Our focus in Q1 is on production efficiency, improving gross margin and making sure customers are really happy when they receive the car. It's important for us to operate at that steady state for a bit before we try to drive that number higher."

This year, Tesla plans to deliver about 20,000 Model S units, with about 4,500 deliveries expected in the current quarter. The Palo Alto company projected that it would "generate slightly positive net income" in the quarter. That was welcome news to analysts, who have been looking for the company to become more financially stable.

"There have been other electric vehicle car companies that have had numerous problems. So if I compare it to that, they're leaps and bounds ahead," said Ben Kallo, senior research analyst at Robert W. Baird & Co. "Now they have to prove the details around the business model."

On-time delivery of those Model S cars — which sell for $61,000 to more than $100,000 — will be key to the survival of future Tesla products, which have been hampered by delays. The company initially planned to start building the Model X crossover SUV by the end of 2013, but now says production will start in 2014. The X will share its platform and many of its components with the Model S.

Down the line, Tesla hopes to build a more affordable car, which it will need to sell in quantities greater than the S and X to ensure long-term viability.

Regardless of when and how Tesla expands its offerings, the company faces long odds in making a dent in the sales of gas and diesel vehicles. Electric vehicles accounted for just 0.1% of U.S. sales in 2012, and that number is expected to rise to only 2% by 2020.

Many consumers remain wary of a vehicle with a perceived finite range. The cost of the batteries and related technologies in EVs also makes it difficult to price them competitively with comparable gas-powered vehicles.

Tesla found itself dealing with the issue of electric vehicle range in a recent public dispute with the New York Times.

After reporter John Broder detailed problems with the car's range on a trip from Washington, D.C., to Connecticut, Tesla's stock dropped. Musk went on the offensive, calling the article "fake" and railing against the piece in several television appearances. He then released data logs from Broder's test car, saying they backed up his claims.

The Times initially responded by saying the article was "completely factual," and Broder wrote a follow-up piece defending his initial assertions. The Times' public editor, Margaret Sullivan, eventually waded into the controversy with a blog post that offered measured criticism of Broder but defended his motives.

For the three months ended Dec. 31, Tesla reported revenue of $306 million, beating expectations. But it posted a larger-than-expected loss — $90 million, or 79 cents a share.

In the year-earlier quarter, Tesla reported revenue of $39.4 million and a loss of $81.5 million, or 78 cents a share.

Excluding one-time charges, the company posted a fourth-quarter loss of $75 million, or 65 cents; analysts had expected a loss of 53 cents a share.

Tesla said it delivered about 2,400 Model S vehicles during the fourth quarter and sold most of its remaining Roadsters. It ended the year with more than $221 million in cash.

Shares fell 7.3%, or $2.80, to $35.74 in after-hours trading. During regular trading before earnings were released, shares declined 1.9% to $38.54.

Wednesday's release was the first detailed look at Tesla's finances since September. At that time, production delays had forced the company to downgrade its projected 2012 revenue to no more than $440 million, compared with previous estimates of up to $600 million.

Tesla had built just 255 Model S cars at that point, though it hoped to build 10 times that by the end of 2012. The company confirmed in Wednesday's report that it had indeed built 2,750 cars in the fourth quarter.

The company said Wednesday it has more than 15,000 fully refundable deposits on hand.

Now it just needs to deliver the cars.

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