Tesla (TSLA) petrified its short sellers and amazed its long investors with the quarterly results it announced on Tuesday evening. In the after-hours Tesla's share price advanced by 25% despite already having advanced 35% in the last month. The company announced its first profitable quarter ever after bleeding cash for year after year.
Tesla's profitable quarter was already expected because of an early announcement by the company; however, no one was sure about some of the details. For example, we were already told that the company would deliver at least 4,500 cars in the quarter; however, we didn't know exactly how many. Tesla was able to deliver 4,900 cars in the quarter, which generated $561 million in revenues and $11.2 million in profits, which translates into 12 cents per share. The analysts were expecting the company to post a profit of 4 cents per share.
Basically, Tesla outsold Nissan's (NSANF.PK) Leaf which sold 3,695 copies and GM's (GM) Volt which sold 4,421 copies in the quarter. This is very impressive because Tesla's cars are far more expensive than Nissan's or GM's cars, Tesla doesn't have a network of dealerships like these companies do and the company could have sold even more cars if it could produce more. In the entire year of 2012, Tesla sold 2,650 cars whereas it expects to sell more than 20,000 cars in 2013. This is truly impressive.
Moving forward, Tesla will attempt to sell more cars outside of US where gas is considerably more expensive. During the conference call, Elon Musk acknowledged this by saying that Tesla cars may save an average American $300 a month in gas bills, but it may be able to save a European more than $500 in the same bills. The true number is probably closer to $1,000 considering how expensive gas is in Europe compared to the US.
Furthermore, Tesla is seeing strong numbers in the demand side as well. At the current rate, Tesla expects to receive 22,000 orders per year, which is in line with the company's short term production capacity. The company also plans to increase the number of dealerships (also known as "galleries") from 34 to 49 within this year. While some of the new galleries will be opened in the US, many will be opened in Europe and Asia where Tesla sees a lot of growth opportunity. For the current quarter, Tesla expects to build 5,000 cars and deliver 4,500 cars to the clients.
The best news was actually regarding the company's margins. Tesla announced that it was able to cut the time required to build each Model S by 40% since last year. This is an amazing efficiency achievement within such a short time. It looks like the company is mastering building cars at a very rapid rate while not giving up from quality. Raw material costs were down by 26%, which was another factor contributing to the company's high margins. Tesla was able to double its gross margin from 8% to 17% and maintained its promise of 25% gross margin in the long run. If this is achieved, Tesla will be the Apple of car makers.
Elon Musk acknowledged that even he was surprised with the strong demand Tesla is seeing right now. He said: "there's potential for next year a fairly significant increase in volume as we really test the depth of the demand that's out there. It's probably quite a bit higher than we had originally thought."
I bought Tesla shares when they were trading for $34 but shot myself in the foot by selling covered calls with a strike price of $50. While I missed out on some great profit, I am happy that at least I was able to make money on this company's success.
At 10 years, Tesla is moving from "start-up" territory to "established" territory. After this point, the company will be able to pay for its operations without taking out loans or selling more shares. Success of Model S will allow the company to invest in new models and facilitate growth for Tesla. Up until now, many investors buying shares of Tesla were investing in Elon Musk and they were proven correct. I will admit that I was doubtful of Tesla's success at one point, but I never actually shorted the company. As we speak, the short sellers must be regretting their decision even more than my decision to sell covered calls and limit my potential profit.
In the short term, it's difficult to tell where Tesla's share price will go to. There is a lot of momentum and plenty of short covering in the process, yet there will also be some profit taking and possibly new short positions getting started. In the stock market nothing ever moves upwards or downwards forever and there are usually pullbacks and corrections. I am not saying that it will happen with Tesla, but I wouldn't be surprised if it did happen. I also wouldn't be surprised if Tesla kept climbing all the way up to $100. In the long run, as long as the company continues its great vision and successful execution, there will be great returns for the investors.