How Tesla Motors Inc (TSLA) Investors Are Being Misled

Tesla Motors Inc (NASDAQ:TSLA) has found itself in the headlines and on a rocket-ship trajectory in the markets, with its stock up more than 50 percent in the last five trading sessions and up 95 percent in the last month. And why not? The company reported its first-ever profit as a publicly traded company in its most recent earnings report, the company’s flagship Model S got a near-perfect score from Consumer Reports  … I mean, what is there not to like about this company and its all-electric automotive business model?

Tesla Motors Inc (TSLA)Yes, the bulls are running wild like it’s Pamplona all over again. What could possibly stem the tide other than a disappointing earnings report in August? By then we could be looking at $100-plus per share Tesla Motors Inc (NASDAQ:TSLA) and the story can be told that electric cars – and luxury ones at that – can be successful in the U.S. and international markets.

For all of the good that has come out of Tesla Motors Inc (NASDAQ:TSLA) the last couple of weeks, one analyst decided to play Bob Bummer to this whole story by looking deeper into the earnings report that was submitted. He makes the case that the paper profit is a paper tiger for Tesla and is something to be watched closely in future quarters. Through analyzing the numbers, the case was being made that Tesla really didn’t make a profit at all – at least not when it came to its actual business of selling cars. When one factors in the numbers of actually running the business, the company made $96 million in gross profit but had a net loss of $5.6 million in the quarter just on the car-selling part of the business. The company actually got $68 million in credits out of California and another $17 million in federal credits for the company being “green” and offering green technology.

It is noteworthy that about half the cars Tesla Motors Inc (NASDAQ:TSLA) has sold have been in California, and for every car sold in the Golden State, Tesla gets huge subsidies from the government – especially under the California Zero Emission Vehicle Program, which essentially  forces other car companies like General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F) to increase prices on their cars just so they can pass that increase on to Tesla for Tesla to have the opportunity to sell its cars in California.  That is about the simplest way to describe it.

Therefore, when you add in those subsidies and credits to an already negative picture in terms of running the car-sales business, and Tesla Motors Inc (NASDAQ:TSLA) did not do nearly as well as it showed on paper.