Elon Musk's start-up has made a profit and forecasting that sales will shift up a gear
By P.E. | DETROIT
IT HAS not been a good year for the electric-car industry, considering the bankruptcy of little Coda and the all-but-certain collapse of the once-promising Fisker Automotive. Even well-established carmakers such as General Motors and Nissan have been struggling to entice buyers (though Nissan’s Leaf battery car has begun to develop a little bit of momentum after missing its sales target for the second year in a row).
So it is perhaps no surprise that 42% of the shares in Tesla Motors, a maker of electric cars based in Silicon Valley, are now held by short-sellers. They got a rude awakening, however, when the ever-optimistic Elon Musk, Tesla’s boss and the man behind the Space X commercial launch and other entrepreneurial feats, gave word that after ten years in the red, his start-up had turned a profit of $11.2m in the first quarter on unexpectedly strong demand for its new Model S sedan (pictured above). The results were well above the forecasts of even the most optimistic analysts; Tesla made a profit despite repaying $13m of the $465m it has borrowed from America’s Department of Energy.
All 5,000 of the battery-electric vehicles Tesla produced during the first quarter were sold in the United States. But as it gears up to expand its overseas markets later this year, Mr Musk is signalling that things could get even better. The company now forecasts that it will produce 21,000 sedans in 2013, a 5% increase over its initial estimate, and anticipates shipping 5,000 to Europe and another 1,000 to Asia.
In a letter to shareholders, Mr Musk noted that a “stabilised” manufacturing operation has helped reduce the number of man hours needed to produce a vehicle by 40% since the end of last year. Just as importantly, customers have been opting for the more expensive versions of the Model S, including one with a range of almost nearly 300 miles (480km), more than three times that of most of its competitors, including Nissan’s Leaf. Tesla has now decided to drop the basic model of its sedan.
As his company’s public face, Mr Musk has been very visible in recent months, among other things announcing innovative new programmes that are designed to reduce concerns about electric propulsion. These include a “no-fault” battery warranty and a guaranteed minimum price for trade-ins. He has also shown a willingness to take on critics, notably the New York Times. Tesla was generally considered the winner in a dispute over a critical review by the newspaper of the Model S, with the Timesacknowledging that its reporter did not use especially “good judgment” in a test drive that depleted the car’s battery. On May 9th, Consumer Reports gave the Model S a 99 out of 100-point rating, the highest score in six years and matched only once before by the Lexus LS600.
Whether the latest quarter and future forecast will now send the short-sellers packing remains to be seen. Tesla posted an $89.9m loss in the last three months of 2012 and plenty of sceptics still question the viability of the nascent industry. There are certainly some other positive signs, such as the strong surge in demand since Nissan began producing batteries and battery-cars in Smyrna, Tennessee. But demand for the Chevrolet Volt plug-in unexpectedly dipped and vehicles from other carmakers, including Ford, Honda and Toyota, are still little more than asterisks on the sales charts.
Meanwhile, Fisker appears all but certain to declare bankruptcy, something senior executives signalled during a hearing by the House Oversight Committee in Congress last month. The once-promising maker of sleek plug-in hybrids let go about three-quarters of its workforce in April, weeks after Henrik Fisker, its eponymous founder, tendered his resignation. Then there is Coda, another Californian start-up that gained little traction with its own Chinese-made battery-electric car. Times are equally rough among electric-vehicle component manufacturers. Fisker’s battery supplier went bust and was sold to a Chinese manufacturer earlier this year.
Through it all, Mr Musk has remained uniquely upbeat about the electric-car market, his unbridled enthusiasm apparently carrying over not only to Tesla showrooms but to Wall Street where, to the pain of those short-sellers, the company’s share price has surged to over $69 a share, a rise of nearly $20 in barely a month. Mr Musk is determined to prove that the right product and the right sort of customer support will win over potential buyers. The latest financial report certainly has given him credibility on that. But now Tesla must prove it can remain powered up as it goes forward.
