Founded in 2003 with headquarters in Palo Alto, California, Tesla Motors is a one-of-a-kind American company that manufactures and designs luxurious electric cars. Tesla, which began trading on NASDAQ priced its initial shares at $17 each and has since reached a price of $203.77 as of Friday. Despite the outstanding increase in dollars per share in the last five years, Tesla has just reported an enormous fourth quarter loss that widened to $108 million dollars, surpassing analysts’ projections. The reason for this startling loss was because deliveries of Tesla’s $71,000 and higher luxury electric cars due to weather conditions and customers being unable to pick up deliveries. Tesla claimed that it lost 13 cents per share and while demand remained strong for its Model S sedan, deliveries were adversely affected by shipping problems.
Because Tesla’s unforeseen delivery problem, 1,400 vehicles produced in December were unable to be delivered. This is a big problem for three reasons. First, Tesla’s tardiness could reduce customer satisfaction and may lead to Tesla’s forced compensation of its loyal customers to restore faith in the eyes of consumers and investors. Secondly, any legal action taken by customers or any compensation for the postponed deliveries could be detrimental to Tesla’s revenues. And third, management may be scrutinized, which could discourage investors.
In respect to some of the numbers on Tesla’s financial statements, the numbers do not lie and confirm the widening loss the company is experiencing. Tesla sold 9,834 vehicles in the fourth quarter, which is 2,942 more than last year. Revenue in the fourth quarter jumped to $956.6 million from $615 million a year earlier, but the net loss of $16 million last year is still daunting and detrimental to the company. Tesla’s operating expenses just about doubled to $336.5 million this quarter from a year ago as well, and cash has fallen from $2.4 billion in the most recent third quarter to $1.9 billion this fourth quarter.
The biggest problem I see for Tesla is the possibility of dwindling investor confidence. Elon Musk, Tesla’s chief executive officer, shocked investors in January when he explained that the company is unlikely to reach a net profit until 2020, when the Model 3 sedan would be in production. The CEO’s intentions are not reflective of the typical investor’s goal, such as the greatest value per share in the short run, because he is more concerned with the turn to alternative electric vehicles. Although Musk’s intentions are noble and eco-friendly, it does not seem plausible because Tesla’s base price for the Model S is about $71,000 and the Model 3, which will not be in production until about 2020, will start at around $35-$40,000. The prices Tesla advertises reflect prices that citizens of Geneva could afford, but with America’s GDP per capita of $53,000, it is not within our means. The reduction in gas prices could also being affecting Tesla’s revenues because the need for cars that get more miles to the gallon will not be as crucial and buying a $70,000 entry model will not be justifiable for most automobile consumers.
Feb. 20, 2015