Tesla Motors (TSLA) second-quarter showed the company is profitable not only for the first half of this year, but going forward as well, as results surged past Wall Street expectations.
The Palo Alto, Calif.-based electric car maker, led by CEO Elon Musk, earned 5 cents per share on sales of $405 million. Analysts were expecting a loss of 17 cents per share on $383.4 million in sales. Gross margin for the quarter was 22%, as zero emission vehicle (ZEV) credits continue to come down, and the company is well on its way to achieving 25% gross margins, excluding ZEV, something few automakers do.
The obvious driver of results was the incredible demand for the Model S. Global deliveries of the Model S surged to 5,150 units for the quarter, and the company believes it can sell as many as 40,000 units by late 2014.
For the third quarter, Tesla expects to deliver slightly over 5,000 units of the Model S, but curiously kept its full-year delivery guidance of 21,000 Model S units unchanged. While that may be something to caution about in the short-term, it's clear that judging by the share price reaction today, Tesla bulls are out in full force.
With shares up nearly 300% year-to-date, Tesla is doing everything right in the eyes of Wall Street, and then some. Here's what some analysts on the Street had to say, as the company continues to deliver results beyond some of the wildest expectations.
Morgan Stanley analyst Adam Jonas (Overweight)
"An excellent quarter of execution, surpassing already high expectations. Tomorrow's stock reaction will depend on how the company explains the unchanged full year delivery guidance as a function of supply rather than demand. Despite expectations that continue to rise nearly as fast as the share price, Tesla seems to have found a way to deliver yet again. The company now sees potential for 40k Model S run-rate by late 2014 (vs. MS 2015 forecast of 30k). Consensus will likely rise, while bears may cling to questions about the limited addressable market for premium EVs."
Goldman Sachs analyst Patrick Archambault (Neutral, $94 PT)
"We do see the company as well positioned to exit the year at its target gross margin of 25% on tailwinds from a significantly richer mix, improved production efficiencies and by 4Q better leverage from volumes. One critical item for us that remains less clear is demand. While much of the company’s valuation is based on the Gen 3, the Model S is the litmus test the market has over the next several years. That the company’s target sales run-rate of 40k units for late 2014 embeds a 20K assumption for N America, (essentially unchanged from the NA run rate today) is a weaker signal on domestic growth than we would like to see even if the company is being conservative."
Deutsche Bank analyst Dan Galves (Buy, $160 PT)
"We continue to believe Tesla is proving out the inherent advantages of EV’s, has largely solved the range disadvantage, and has visibility to cost-parity vs Internal Combustion competition on the Gen3 vehicle. Cost parity is powerful, given that Tesla should be able to charge a premium due to $1,500 - $2,500 annual fuel / maintenance savings (could support 10 points of excess margin)."
JPMorgan analyst Ryan Brinkman (Neutral, $83 PT)
"TSLA’s stronger than expected set of 2Q results should do much to help assuage concerns regarding the steep uphill climb to meet management’s aggressive mediumterm margin targets. Underlying margins ex-ZEV credits improved a solid +8 ppts q/q to 14% from 6% in 1Q, with most of the improvement coming in the areas of purchased component cost savings, supply chain efficiencies, and more efficient use of labor. A similar magnitude improvement in 3Q would bring TSLA within reach of its 25% 4Q margin goal ex-ZEV credits."