There seems to be a Seeking Alpha contributor (John Petersen) giving a dissenting opinion over what was a phenomenal quarter for Tesla Motors Inc (NASDAQ:TSLA). In a recent article John Petersen stated, “Few commentators and even fewer investors understand that Tesla’s Q1 income guidance is little more than an epic April Fools prank, an aberration attributable to the confluence of non-recurring factors that will leave Tesla Motors Inc (NASDAQ:TSLA) solidly in the red for the next two years.” However, I believe that the non-recurring factors were already taken into consideration when the company’s management team offered their strong guidance for the whole fiscal year.
Tesla earnings highlights
Tesla Motors Inc (NASDAQ:TSLA) has been able to report a fairly phenomenal quarter in the past fiscal year. The company’s highlights included growth in revenue quarter-over-quarter from $294 million to $555 million (83% growth from quarter 4). This implies that the company’s overall growth is starting to accelerate. The company hopes to generate a gross margin of 25% by the end of the fiscal year and hopes to achieve this by improving the overall efficiency of the business operation. In its most recent results, the company was able to reduce the build time of a car by 40%. Reducing the cost of labor by 40% will drastically improve the company’s profitability. This improvement in profitability is what is likely to offset the negative effects of declining ZEV energy credits.
The company’s improvement in management efficiencies along with better product distribution through its retail stores in various locations across the country is what is causing the stock to move in a parabolic manner. The company’s stock price has been able to advance by 147.2% since the beginning of the year.
The guidance was strong
Tesla Motors Inc (NASDAQ:TSLA) was able to guide to a 21,000 delivery figure for the full fiscal year of 2013. The company’s guidance was about 5% better than what the company provided in earlier guidance. That being the case, the company also alluded to a 25% gross margin for the full year of 2013.
Analysts on a consensus basis expect the company to grow its sales by 365.50% for the current fiscal year. Analysts expect earnings to grow by 104% for the current fiscal year with the following year earnings growth estimate set at 938% on a consensus basis.
The company’s five-year growth rate projection on a consensus basis is 46%, one of the driving factors behind the stock’s torrid ascent.
Peer comparison
Both Ford Motor Company (NYSE:F) and General Motors Company (NYSE:F) are fairly mature automotive companies that do not offer cars with nearly the battery efficiency of Tesla Motors. Tesla’s car line is about luxury, which is in sharp contrast to Ford Motor Company (NYSE:F) and GM’s focus on the lower-end consumer who want to pay less than $400 a month in car payments. Tesla on the other hand offers payment plans at around $580 a month for its vehicles.
General Motors Company (NYSE:GM) foray into the EV market is the Chevrolet Volt. The Volt is more or less a flop as the range is limited to 38 miles, on the plus side the car can alternate between traditional fossil fuels and electricity, making it versatile. But the Tesla Model S comparatively has a 208 mile range. The Tesla Model S also comes with Tesla charging stations that allow for a Tesla Model S owner to charge on long trips.
The Ford Focus Electric is Ford Motor Company (NYSE:F)’s EV car. The Car is a worthy contender in the space, but its range is limited to 76 miles. On the plus side the car looks perfectly normal and it is priced at $37,995 when compared to the Tesla Model S which is priced at $77,400. The Tesla Model S has longer range, looks luxurious, and drives like a sport car.
The vehicles that Tesla Motors sells are marketed through a company operated retail network located in mall locations. I visited a Tesla Motors showroom at the Scottsdale Fashion Square Center which is a mall that is owned and operated by Macerich Co (NYSE:MAC). These stores help to show case the company’s products and services. This is entirely different from the dealership model that General Motors Company (NYSE:F) and Ford Motor Company (NYSE:F) adhere to. That being the case, Tesla Motor’s (NASDAQ:TSLA) showroom business model may be more profitable in that it lowers overall selling costs when compared to the alternative business of running multi-million square feet car dealership that are bloated with overhead costs. Tesla’s show-room business model benefits from the added foot-traffic malls tend to receive, which leads to free word-of-mouth-marketing.
Conclusion
Overall, Tesla seems to be doing the three facets of a business extremely well. It has done exceptionally at lowering manufacturing costs, leveraging effective marketing strategies, and offering phenomenal products.
Who wouldn’t want to upgrade to a fuel-efficient, iconic luxury car that has high re-sale value. Being at the cutting edge of technology would involve owning a Tesla. It’s the best American luxury brand that can stand toe-to-toe with the likes of BMW and Mercedes Benz.
The article Tesla Motors Stifles the Critics originally appeared on Fool.com and is written by Alexander Cho.
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