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Tesla sold 6,457 Model S sedans during the quarter, looks forward to sales of 35,000 for 2014

Tesla Motors may be a relatively young American automaker — at least compared to existing heavy hitters like General Motors and Ford — but it is steadily ramping up sales of its Model S all-electric sedan and expanding into new markets to help drive growth.
 
I. Q1 2014 performance sees non-GAAP net income of $17 million
 
Tesla released its Q1 2014 earnings reports yesterday and things are looking good for the company. Tesla managed to sell 6,457 Model S sedans during the quarter, which was slightly ahead of earlier company guidance. During the quarter, Tesla actually built 7,535 Model S sedans to pad the inventory in preparation for the vehicle’s Chinese launch (sales began in that country two weeks ago).
 
The forecast for Q2 2014 calls for production of 8,500 to 9,000 cars with deliveries of 7,500. For all of 2014, Tesla is expecting global delivery of 35,000 vehicles. The current production rate for Model S is nearly 700 vehicles per week, and by the end of the year, that number is expected to rise to 1,000 vehicles per week.


Tesla Model S
 
As for the financial side of things, Tesla reported non-GAAP revenue of $713 million, net income of $17 million, and gross margins of 25.4 percent. Research and developments (R&D) expenses rang in at $68 million.
 
On a GAAP basis, revenue was $621 million, the net loss was $50 million, gross margins were 25.3 percent, and R&D costs totaled $82 million.
 
R&D expenses on a non-GAAP basis were up 17 percent compared to the previous quarter thanks to the global expansion of the Model S and the engineering for the upcoming Model X crossover (which has recently been delayed again).
 
II. Tesla Motors looks to China for growth
 
Tesla Motors CEO Elon Musk is enthusiastically embracing the Chinese market, having just launched the Model S there last month. Musk described:
 
Each event enjoyed ample media coverage, complete with delighted Model S owners receiving their cars. Tesla received further media attention thanks to the Shanghai government’s announcement that Model S drivers in the city will be entitled to free license plates, thereby avoiding the usual public auction price of $10,000 to $15,000 per plate. Since Model S pricing in China was already very competitive, this makes the car’s value proposition even more compelling.
 
We plan to expand in China as fast as possible because we believe the country could be one of our largest markets within a few years. We are also encouraged by how fast we have been able to develop our infrastructure in China when the proper support is in place.
 
Infrastructure is a key concern in the Chinese market. While Tesla has plans to expand its growing Supercharger network in China, it currently only has three sites open in the country.


Tesla CEO Elon Musk during a recent visit to Beijing [Image Source: Julie Makinen/LA Times]
 
The Chinese government — like the U.S. government — is pushing automakers to embrace electric vehicles. This means not only investing millions into developing and producing EVs that are such a small percentage of the overall Chinese auto market, but also building out the infrastructure in the form of charging stations across the country.
 
According to a report from the China EV Blog, the overall Chinese auto market pushed 22 million vehicles in 2013. However, only 14,604 of those were EVs. While that number seems minuscule, Musk sees excellent growth potential as Chinese buyers warm up to EVs and the crucial infrastructure is in place to support the viability of owning an EV.
 
III. California wants in on Tesla’s Gigafactory
 
When it comes to Tesla’s much-ballyhooed Gigafactory — which will produce batteries for Tesla’s EVs and its sister company, SolarCity — four states were selected as potential sites for construction. New Mexico, Nevada, Arizona, and Texas were selected as finalists for the gigafactory, but the latter two seem unlikely to win the bid due to their auto sales laws that favor dealerships.
 
However, a new wrinkle has surfaced, and it’s coming from the state of California. California is looking to court businesses after its Toyota announced plans to pack up its headquarters and move to Texas (although some insiders have claimed that the move was due to high taxes and regulations, Toyota execs points to streamlined operations and economies of scale for moving to Texas)
 
While the state of California can do nothing to stop Toyota from leaving, Governor Jerry Brown is making a concerted effort to persuade Tesla — which currently has its HQ and production facilities based in California — to build the Gigafactory in the state.


California Governor Jerry Brown
 
"The administration is working every day to bring companies to California and help them grow here,” said a spokesman for California Governor Brown. “Tesla is certainly one of those companies."
 
Musk isn’t exactly sold on the offer; after all, there was a reason why California wasn’t a finalist for the Gigafactory in the first place. "We can't afford to wait a year or more for permits to proceed," said Musk on Wednesday. "If we don't have the gigafactory online when we have the vehicle capacity online we would be in deep trouble."
 
“But the question of timing is still a big one, and we need to make sure ongoing operational costs are not significantly worse than other states. California is in the improbable, but not impossible, category at this point.”
 
Interestingly enough, Tesla plans on breaking ground on its first Gigafactory site in June, and the second site a few months after. Yes, you heard that right; Tesla is planning to — at least initially — break ground on two separate sites. This costly move doesn’t mean that Tesla is actually going to build two Gigafactories, but it is hoping to further pit state and local governments against each other in an effort to score the largest incentives package possible.
 
"This is certainly a unique approach, and -- not in a negative way -- a very shrewd tactic as well,” said Alec Gutierrez, a senior analyst at Kelley Blue Book. "But my guess is they've done the math, and the concessions package they're expecting will more than offset those costs."

 
Looking forward, Tesla is expecting that the Gigafactory will allow it to produce roughly 500,000 EVs per year by 2020. However, by that time Tesla will be facing pressure in the EV space from a host of manufacturers (both mainstream and in the luxury space).
 
We’ve already seen companies like BMW and Mercedes-Benz show interest in all-electric vehicles, and the latter doesn’t see a bright future ahead for Tesla once traditional automakers start gearing up production.
 
“Tesla is great, but you’ve got plenty of well-established brands that mean luxury, like Porsche or Mercedes-Benz, and how long do you think we’re going to wait and let Tesla be out there alone [selling premium electric cars]?” said Mercedes-Benz U.S. head Steve Cannon last month. “So, good job, Tesla, but will they be able to maintain that with the others of us out in the market? That remains to be seen.” 

Sources: Tesla Q1 Results [PDF], China EV Blog, Fortune Tech, LA Times





"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)







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