Tesla Proved The Shorts Wrong But Can It Survive Independently?

| About: Tesla Motors (TSLA)

Since we last talked about Tesla (NASDAQ:TSLA) with the Wall Street Journal, Tesla was in a pivotal quarter. We felt that this was the quarter that would be the make or break it quarter for Tesla to show significant progress in its production and generate revenue in order to survive independently going forward. Until this quarter, Tesla has had a record of losses with a significant level of cash burn. Tesla has turned it all around, recently blowing out earnings, and earning a profit for the first time in its company history. In the process, its shares skyrocketed and pushed out many investors that were short the stock.

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Source: Morningstar Direct

Here are the significant improvements Tesla has achieved in improving its ongoing future survivability:

Tesla significantly beat earnings. It reported $15 million or $.12 a share, blowing out Wall Street estimates of $.04 a share. This was compared to when it posted a loss of 76 cents per share a year earlier. That was 200% higher than what the Street was forecasting.

Tesla earned a profit for the first time ever since its inception. During Q3 2012, Tesla had incurred a loss of $111M with negative operating cash flows of $95M. It was in need of serious funding when its secondary offering was announced. This profit was a complete turnaround and exactly what it needed to do and at the right time.

Tesla is turning around and improving its financial strength. In September 2012, Tesla announced its secondary offering and also that it was cutting its revenue target from $560M-$600M to $400M-$440M for the 2012 fiscal year. It also said it anticipated that it would take longer to deliver on its target of 5,000 vehicles to customers. With its financial position strengthened, it may be able to reverse these trends for fiscal year 2013.

Tesla is on schedule in paying back its DoE loan. Tesla paid back $12.7M of its DoE loan during the quarter and has $19.1M available for its Q1 2013 payment. With the recent beat in earnings, it may be on the path to further increasing its DoE loan payment and improving its financial strength.

Tesla's goal of reducing its Capex. Tesla will be spending less on its Capex in 2013 as it has concluded its investment in the Tesla Factory and has begun producing the Model S but it will continue to invest in expanding its service and store footprint.

Consumer Reports came out with a review that gave Tesla overwhelmingly positive scores. It scored 99 out of 100 in its testing of its Model S sedan, which helped increase confidence in both investors and consumers.

Tesla was in prime position to experience a short squeeze. Tesla short interest was very high and speculators were betting it would miss its numbers. On Wednesday, May 8th, 2013, Tesla's stock price closed at $55.79. By Thursday, it was $69.40 and by Friday, it was $76.70. We'd definitely say a good chunk of the speculators were squeezed out.

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Source: Morningstar Direct

Although Tesla has proved many critics wrong, the stock price has moved up very fast in a short amount of time. We were very critical of Tesla previously and for good reasons. However, we did take note of its increased production and revenue for Q4 2012 as well as its optimistic projections for FY 2013. It seems Tesla is one step closer in hitting their optimistic projections for FY 2013 and being able to survive independently, it is still not completely out of the woods just yet. We still believe that Tesla may have to issue one more secondary offering in 2013 to help bolster its cash position.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this article. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for, or trade securities or other instruments.

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