An Electric Car Success Story?

16 Apr, 2013

Despite posting its first-ever quarterly profit after ten years of operations, electric car manufacturer Tesla Motors (NASDAQ:TSLA) has seen investors shuffling nervously, as analysts and major car makers have targeted the California firm as the epicenter of curious analysis.

The firm cites higher-than-expected sales figures for its Model S flagship sedan as the key driver of the first black numbers to appear on the books since the company’s inception in 2003 by PayPal co-founder Elon Musk. The Model S, which began production in 2012, sold more than 4,750 units in the quarter, comfortably surpassing forecasts of 4,500.

Tesla also boasts that it is prepared to accelerate repayments of the US Department of Energy loan borrowed in order to bring the Model S to production.  Other notable recipients of Dept. of Energy loans include failed Solar power firm Solyndra and near-bankrupt auto manufacturing firm Fisker.

Analysts, however, have been quick to point out that some of Tesla’s numbers are suspicious at best. As of year-end 2012, the company had booked 15,000 orders for the Model S outstanding. However, there have been instances of customers receiving orders with turnaround times as low as 3 months, suggesting that the company may be experiencing a surge in either cancellations or deferments.

In addition, Tesla recently confirmed the content of an email sent out to customers urging them to make payments in advance in pursuit of posting the company’s first profitable period. By pulling orders forward, the company would be able to recognize revenue for outstanding orders in the quarter, but will also undercut revenues from future quarters from which orders have been pulled.

On Tuesday, the company released a new financing program in partnership with Wells Fargo and U.S. Bank that was also met with suspicious eyes from analysts. The company offered a figure of $500 per month as the “true cost of ownership”. Monthly payments for base models tend to hover around the $1,400 mark. However, the company maintains that, when you consider the various savings, from government incentives, gas savings, and more, that $500 is a far more reasonable figure.

While investors have responded both positively and negatively to the announcements and subsequent headlines, the stock still sits well above its position from last week.

This is not the only time the company has found itself at the epicenter of negative attention from the public. In 2008, Tesla filed suit over libel and malicious falsehood against the popular motoring program Top Gear, when the show allegedly misrepresented some mechanical failures on the Tesla Roadsters during a review. The claim was rejected in 2011.

Controversy over the Model S arose earlier this year when the New York Times released “Stalled Out on Tesla’s Electric Highway,” a review testing the luxury sedan’s true range.  In the article, the reviewer, John Broder, alleged that the Tesla could not, as Tesla officials claimed, make it from Washington, D.C. to Boston with only two charges in between and said he had the experience to prove it.  The critical article caused a 4 percent drop in Tesla shares.

Tesla, though, had a trick up its sleeve.  Having learned its lesson from the Top Gear incident, Tesla engineers set all Teslas destined for review to record the travel information of their reviewers to ensure that the reviews do not misrepresent Tesla.  Broder, as Elon Musk tweeted, “didn’t actually charge to max & took a long detour.” An ensuing Tesla blog post detailing the data collected showed that Broder did, in fact, misrepresent his travel information.  A later successful test drive by CNN, taking the same route as Broder, exonerated the Model S of excessive power drain.

The company has also made adjustments to its product line. Although the current Model S has a base price just above $60,000, Tesla will drop this option, focusing on higher margin models. Existing orders for the base model, which comes with range and speed limited by a smaller battery pack, will be fitted with larger battery packs, but will have their performance limited by software to mimic that of the base model.

While Tesla’s success is uncertain and its first-ever profit is suspicious, Elon Musk’s vision of making an affordable electric car is more within reach than when he founded Tesla with that goal in mind ten years ago.  Tesla Motors is still in its infancy, but its early successes have already sent a powerful message to the world’s automakers.  Among them, BMW, Ford, GMC, Honda, Nissan and Toyota are each offering an electric vehicle model for the 2013 model year.  

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