Everything about Tesla Motors Inc (NASDAQ:TSLA) defies current conventions.
It sets up shop in Silicon Valley, not Detroit. It builds electric vehicles, not gasoline-powered ones. And it believes that a future with purely electric vehicles is not only a possibility, but an inevitability.
Tesla CEO Elon Musk once claimed that entrepreneurship is like “eating glass and staring into the abyss of death.” Many loyal Tesla shareholders echo his sentiment.
In the nine years since Tesla’s founding, and the two years since it’s been publicly traded, Tesla has yet to produce a cent in profits. The company’s negative free cash flow, rising expenses and soaring debt could lead it straight to bankruptcy unless it can finally show the market that its business model can be profitable.
Yet despite all these odds, 2013 could be the year that Tesla finally turns a profit.
The Niche Market
Tesla’s luxury electric vehicles cater to a niche market - wealthy, environmentally conscious clients who are willing to purchase its vehicles despite the lack of a viable public charging infrastructure. That keeps owners from taking cross-country road trips, and restricts them to using the vehicles for short-range urban trips.
Larger automakers such as General Motors Company (NYSE:GM), Toyota Motor Corporation (ADR) (NYSE:TM) and Nissan all see electric vehicles as a possible future, but have shied away from mass producing all-electric vehicles, opting for more marketable hybrids instead.
By contrast, Tesla has never shied away from the unconventional or audacious - its flagship Roadster, which retails for $109,000, is modeled after the iconic Lotus Elise.
Last November, Tesla posted a third-quarter loss of $110.8 million, nearly double the $65.1 million it lost in the prior year quarter, and wider than analyst forecasts. Tesla also used a secondary stock offering to generate $222 million, bringing its total cash reserves back up to $300 million. However, it is still shouldering $474.51 million in debt.
The Model S
However, net losses and rising debt levels aren’t a big surprise for Tesla investors. They were more interested in Tesla’s production schedule for its upcoming Model S sedans, its more affordable mainstream model priced between $60,000 to $80,000, which was named Motor Trend's 2013 Car of the Year. It comes in three models, all with exceptional range for an all-electric vehicle.
|40-kWh||160 miles (260 km)|
|60-kWh||208 miles (335 km)|
|85-kWh||265 miles (426 km)|
How does that measure up to the current generation of highway-capable all-electric vehicles?
|Nissan Leaf||24-kWh||73 miles (117 km)||$27,700|
|Chevrolet (GM) Volt||16.5-hWh||Electric Mode: 38 miles (61 km) Hybrid Mode: 380 miles (610 km)||$31,645|
Both the Leaf and Volt sell for roughly half the price of the Model S. However, the Volt has a special feature - an onboard gas-powered generator that extends its range ten fold.
Demand for the Model S was high during the third quarter, with orders rising sequentially from 11,500 to 13,200. Tesla’s reservation website shows that its more expensive Model S Signature has already been sold out, strongly suggesting that fourth quarter reservations will come in much higher than anticipated.