Tesla's (TSLA) Biggest Number Yet


Tesla (TSLA) shares spiked yesterday, following news that VP Jerome Guillen pre-announced fourth-quarter sales, as Tesla delivered 6,900 Model S units during the fourth-quarter of 2013, 20% higher than initial guidance. While that may have been the big talk of the day, the bigger talk should be that Tesla is now meeting demand, which is a great thing going forward.

In a research note, J.P. Morgan analyst Ryan Brinkman noted that Tesla's stronger-than-expected deliveries are encouraging, and it means that Tesla is more successful in ramping up production. "TSLA updated that it exited 4Q producing at a rate of 800 cars per week (or roughly 10,000 per quarter), materially above our expectation of 550 cars per week (or roughly 7,000 per quarter)," Brinkman wrote in a note.

Brinkman rates Tesla shares "neutral."

That means the key takeaway from the announcement at the Detroit Auto Show should not be that 6,900 Model S units shipped, but the fact that it can now produce 800 cars per week.

Tesla attributed the strong performance to "the superlative safety record of the Model S and great performance under extremely cold conditions," according to the company's press release.

The company's deal with Panasonic has obviously helped relieve some of that constraint when it comes to the lithium-ion cells, and that bodes well for future deliveries, especially as investor enthusiasm in the company ramps back up, and more people drive the car.

During Tesla's third-quarter earnings call, CEO Elon Musk noted that the company was extremely supply constrained, and that's why fourth-quarter guidance was a little soft, with the company saying it expected deliver "slightly under 6,000" cars.

The company noted it actually "starved" demand in North America during the third-quarter to ship some units to Europe.

"The main constraint on our production is really the [lithium-ion] cells, and I think I have mentioned that before in talks and I think I alluded on that on prior earnings call, so we were addressing the cell supply constraints and any sort of constraints that are non-cell constraints that exist, but the critical thing is the cell production constraints," Musk said at the time.

While the Model S is obviously the draw for Tesla now (with the Model X coming late this year), the real draw for the company will be the third-generation, mass market car.

Brinkman noted during the presentation management sounded "notably confident" on the prospects of the mass-market car. In the past, Musk has said he'd like to get the price of the car down to around $35,000, and management proclaimed the price could be between $30,000 and $35,000, in line with what Musk has previously said.

Not only is the company confident of getting the price down to where it becomes a mass market car, Tesla noted the Gen III car could have potential ranges of 200, 300 and perhaps as much as 400 miles, as well as category-leading gross margins. If Tesla is able to meet its own expectations and get the price down to around $35,000 with a range between 200 and 400 miles, Brinkman noted that "it would provide significant upside risk to our estimates and valuation."

Tesla may have had some troubles in recent months concerning the safety of the Model S, with the National Highway Traffic Safety Administration (NHTSA) being asked by Tesla to probe the safety of the car. However, that doesn't appear to be swaying consumer demand. Tesla has its legions of fans (including yours truly). People who have driven the Model S rave about the driving experience, saying it's unlike any other. Now that Tesla looks as if it has the production issues under control, you can expect to see even more Model S cars on the road.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , Technology

Referenced Stocks: TSLA

Chris Ciaccia

Chris Ciaccia

More from Chris Ciaccia:

Related Videos

Don't Pay Up to Play REITs
Don't Pay Up to Play REITs          



Most Active by Volume

  • $97.19 ▼ 10.38%
  • $6.795 ▲ 0.37%
  • $15.45 ▲ 8.73%
  • $17.60 ▼ 0.11%
  • $7.17 ▲ 0.84%
  • $112.105 ▲ 0.29%
  • $80.79 ▲ 1.14%
  • $7.415 ▲ 1.02%
As of 12/22/2014, 09:42 AM

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com