Tesla Motors Inc (NASDAQ:TSLA) reported a fourth-quarter loss after the bell on Wednesday of just under $90 million, or $0.65 a share excluding special items.
That was a wider loss than the $0.57 a share expected by analysts, a gap the company attributed to an unexpected jump in operating costs as it ramped up production of its Model S sedan.
Profits could be coming shortly as Tesla continues to ramp up
The real story is this: Despite some (completely predictable and untroubling) snags as the company ramped up production, Tesla’s go-to-market plan for the upscale Model S electric sedan is progressing quite well – better, really, than even Tesla’s go-go CEO, Elon Musk, could have reasonably expected.
In fact, things have progressed so well that Tesla now expects to report a (likely very small) profit in the first quarter of 2013, and to be profitable thereafter. How profitable, of course, will depend on how quickly the company continues to ramp up, and signs on that front are promising.
As of the end of 2012, Tesla had ramped up its production to 400 cars a week, despite snags that included delays in receiving parts from suppliers and some unexpected worker overtime. Musk said on Wednesday that the company expects to increase that somewhat, as it works to iron out those issues, to about 500 a week by mid-2013, and he said that production could increase further from there if demand warrants.
Tesla produced over 2,750 vehicles during the quarter, and about 3,100 total in 2012. That was short of its goal of 5,000 for the year.
Snags aside, Tesla’s ramp-up to current production levels is an impressive achievement. Also impressive is the quality of Tesla’s product: Not only has the Model S won a whole bunch of impressive awards, its customers are happy, with relatively few problems reported in production models so far.
And that’s a good thing, because demand for Tesla’s impressive ride continues to be strong.
Demand continues to be strong, as Tesla plans global rollout
Musk said that Tesla added over 6,000 “reservations” during the quarter, its term for orders placed with a refundable deposit. Some of those orders tend to (unsurprisingly) get cancelled when it comes time to commit, and Tesla had a bunch of cancellations during the quarter, but Musk said that the company’s net total of reservations increased to over 15,000 at the end of the fourth quarter, up from about 13,000 three months prior.
Musk also said that orders have been strong into 2013, and the company now has about 15,000 orders “over and above what we’ve already delivered.” Demand could pick up as Tesla expands into new markets: Shipments of the Model S to Europe will start in the third quarter, and to Hong Kong and Japan by the end of 2013. And Tesla is in the process of building its first Chinese dealership in Beijing, which is set to open in the spring, according to sales chief George Blankenship.
While Tesla missed its goal of building 5,000 copies of the Model S in 2012, it is on track to build 20,000 in 2013, Musk said. And the company expects to build 30,000 vehicles in 2014, when its next model – the Model X SUV – is expected to begin production.
The upshot: Still on track
There are still reasons to be concerned about Tesla as an investment. The stock’s valuation remains extremely high, even after Thursday morning’s drop. And the big question facing Tesla – whether there’s truly a sustainable market for luxury electric cars beyond the early adopter crowd – remains unanswered. But there’s no question that the company’s execution on its plan continues to be impressive, production snags notwithstanding.
And while I remain very concerned about potential competitive threats to Tesla’s franchise, none of the global automakers have yet shown an electric car that can compete directly with the Model S’s combination of range, performance, and luxury. Until such a competitor emerges, Tesla will have the market to itself – a market that could soon be a profitable one.
The article Tesla: We’ll Be Profitable Soon originally appeared on Fool.com and is written by John Rosevear.
Fool contributor John Rosevear has no position in any stocks mentioned. Follow him on Twitter at @jrosevear. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors.
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