PALO ALTO, Calif. -
Tesla Motors management has been busy as of late, launching a leasing program, confirming reports of a future CPO program for the Model S, and making multiple announcements regarding new vehicles and upcoming models.
That business, though, didn’t translate to a successful third quarter monetarily.
The company reported last week it took a bit of a hit, with a third-quarter loss of $75 million, due in part to production costs backing what the company calls a “rising demand” for the Model S sedan.
Though Q3 revenue rose to $852 million, operating expenses spiked to over $290 million — hence the impressive loss for the quarter.
The company asserted revenue increases were driven by growth of Model S deliveries worldwide, an increase in regulatory credit sales, and an increase in powertrain sales to Daimler AG (Daimler) for the Mercedes-Benz B-Class Electric Drive.
That said, though costs may be up, demand and interest in the automaker's products are, as well.
The company sold a record 7,785 Model S sedans in the third quarter, and in a shareholder letter shared last Wednesday, chief executive Elon Musk and chief financial officer Deepak Ahuja outlined high expectations for the sedan.
Musk said the company plans to build a total of 35,000 Model S sedans this year, delivering 33,000 of those.
And in 2015, the automaker expects sales for this model to spike by 50 percent to almost 50,000.
During a Q&A session held last week to discuss financial results, Musk expressed his confidence this high number will be reached next year.
“I don't think 50,000 is going to be super hard because if you look at sort of how we're exiting the year in production and demand, I think 50,000 seems like a pretty solid number,” Musk said. “We don't want to overreach, but I think 50,000 is a pretty achievable number. That's more or less a modest extrapolation for where we will be at the end of this quarter.
“Let's just say that achieving 50,000 units of the Model S next year is going to be no problem,” Musk added later in the call.
That said, this assertion was met with some skepticism from analysts, who worry the company’s expansion may make things harder for the automaker in the years to come.
“I think the realities of the global automotive marketplace might be catching up to Tesla Motors. Hitting 500,000 sales a year is an awful difficult nut to crack when you have yet to sell 50,000,” said Jack Nerad, executive market analyst for Kelley Blue Book. “Ironically, as a manufacturer transitions from a niche player toward higher volumes, many things get more difficult instead of easier.”
Analysts also claimed Tesla needs to start ramping up sales significantly to justify its large market cap.
“Tesla needs to show they’re more than 35,000 sales units at this point, whether it’s with the Gigafactory, batteries, patents, etc. The Model X will definitely create plenty of buzz, but realistically, like the Model S, it won’t be a volume vehicle,” said Akshay Anand, analyst for Kelley Blue Book.
“And even if the Model III launches in 2017 around $35,000-$40,000, it’s going to be tough for it to be a volume vehicle like a Camry or Accord, considering most vehicles in that segment sell a few thousand units per month and call it solid. I’m curious to see how Musk addresses in detail his expected 500,000 units by 2020,” Anand continued.
And this growth may prove even more difficult since the company also announced last week it will be delaying production of the Model X crossover until fall of 2015.
However, the company has certainly been moving toward a larger, more traditional role in the industry, in light of its recent leasing and CPO announcements.
Back in April, Tesla began offering a Model S leasing program for small and medium-sized businesses through which qualifying customers are permitted to lease a Model S for 36 months, and the company expanded this offering to consumers in October.
As of September 30, the company had deferred $4.5 million of lease-related upfront payments, and the company recorded $1.1 million in lease revenue for the quarter.
Tesla leased 347 vehicles during Q3 and expects to ramp up leasing activity significantly over the course of Q4.
When asked whether the company is going to focus on the direst leasing route or rely more on banking partners, Ahuja said direct leasing will most likely play a role in the company’s future.
“I think we will continue doing some degree of direct leasing. It gives us flexibility and allows us to be in states where our banking partners cannot be there. I suspect we will probably double, from Q3 going into Q4, our direct leasing,” Ahuja said. “So it's still not going to be a big part of the capital required in relation to the cash we have. We always have the option to go and get some bank warehouse lines to fund, but we don't want to do it while there's no need.”
The company is also offering a resale value guarantee to customers who purchased a Model S in the U.S., which may serve to fuel its CPO program upon launch.
Under the resale value program, buyers have the option of selling their vehicle back to Tesla during the period of 36 to 39 months after delivery for a pre-determined resale value.
Musk and Ahuja reported in Q3, the company provided the resale value guarantee to 1,190 Model S deliveries in North America. To date, the company has provided the guarantee to approximately 8,800 customers in North America — rates which may bode well for the model’s future CPO program’s supply.