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Tesla Motors Meets Production Targets, But Will It Meet Profit Targets?

Although we have been skeptical about the prospects of Tesla Motors (TSLA) due to its track record of losses and its significant level of cash burn, we approached our analysis of the company in a fair and objective manner. We can see that our analysis has received critical acclaim by the investment community which manifested itself in our firm conducting an interview with the Wall Street Journal about Tesla. We felt that this quarter would be an important barometer in order to evaluate Tesla’s future performance prospects. It was important for Tesla to show progress in its production and revenue generation in order to show that it had the ability to survive as an independent going concern. We believe that the reason why Tesla’s stock sold off by nearly 9% on Thursday, February 21st 2013 was due to a trio of factors:

Tesla’s share price increased by 40% from its September 25th 2012 low of $27.53/share to $38.54/share on February 20th 2013.
Although Tesla met its revenue and production targets, TSLA’s adjusted EPS missed consensus estimates by $.12/share
Tesla burned through $101.5M worth of cash, which was nearly half of the $222.1M raised in October.

Tesla was More in serious need of funds when it announced its secondary offering. The company incurred a loss of $111M and negative operating cash flows of $95M in Q3 2012. This was compounded by the company’s need to spend $68.5M in capital expenditures and other business investment related expenditures. The company covered this quarterly cash burn through existing cash holdings as well as $40M in new financing cash inflows. Tesla had a negative book value of $27M as of Q3 2012 and it received $222M net of underwriting discount in the secondary offering. Tesla burned through $28.8M in operating cash flows and incurred $72.7M in capital expenditures resulting in book value of $124.7M ($1.10/share) and liquidity holdings of $226M. Tesla’s share price of $35.16 means that the company is still trading at 32X book value.

Source: Morningstar Direct and Tesla’s Q4 2012 Report

When Tesla announced its secondary offering near the end of September, it also announced that it was cutting its revenue target from $560M-$600M to $400M-$440M for the 2012 fiscal year and that it was taking longer than it anticipated with regards to delivering on its target of 5,000 vehicle deliveries to customers. Tesla originally anticipated delivering 500 Model S vehicles in Q3 2012 and it ended up producing 350 and delivering 255. The good news is that it is expecting to produce and deliver between 2,500 and 3,000 Model S vehicles in Q4 2012 and it was able to produce 2,700 Model S vehicles while delivering 2,400. This will enable investors to have confidence that Tesla may reach its projected production of 4,500 in Q1 2013 and 20,000 in FY 2013.


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