2012 Tesla Model S

Tesla CEO Elon Musk predicting Tesla Motors profitability in 2013

Tesla Motors is continuing to rack up steep losses, so a prediction of profitability by next year may strike one as lunacy, until you look at the orders on hand and the projection of sales volume required to break even.

Tesla Motors CEO Elon Musk is again repeating his claim that Tesla Motors will be profitable in 2013, according to a Dow Jones report published today. Given the company's current burn rate as it ramps up production of the Tesla Model S and X electric cars this may be a bold claim, but it is one he has made before. The claim rests on the assumption that manufacturing, orders and purchases of Tesla's high end electric cars will proceed as expected.

At the June 2012, Elon Musk went over the numbers and explained the reasoning behind this prediction. However there continues to be a large "short interest" in Tesla Motors' stock indicating there is a large number of stock traders betting against the company.

In 2012 and 2013 the company will be selling only the Model S, and expects to sell 5,000 units in 2012, and 20,000 units in 2013. The Tesla Model X is expected to go to manufacturing in 2014. This means that during 2012 and 2013 the company expects to sell 25,000 units of the Model S, and the price for that car ranges from the neighborhood of $50,000 to over $100,000 depending on options selected. I expect the "sweet spot" in the Model S line is the mid-range model with SuperCharger.

How likely is it that actual sales will reach this projected volume? In June, Elon Musk disclosed the company had over 10,000 reservations in hand for the Model S. The remainder presumably would go to those who are not currently reservation holders, but will decide to buy sometime in the coming months.

What happens if the company only sells 10,000 Model S's? In other words, what if the company does not meet the sales projections? After all, the other electric car makers are having a hard time meeting sales projections, so it's fair to think Tesla might also fall short. Musk said in June that the break-even point (cash flow positive) for the company is reached at sales of only 8,000 Model S's.

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Therefore with 10,000 orders in hand, and the break-even point reached with 8,000 vehicles sold, one begins to see Musks' reasoning. That "break even" is a slam-dunk, and all Tesla needs is to find other willing customers and the company will be profitable.

In the future, as the Model X goes on sale in 2014, the company expects sales volume to reach 35,000 units per year which would be a 2% market penetration in the luxury car market. The company has plenty of room to grow, because it already owns a factory that had a production capacity of 500,000 vehicles per year when the GM/Toyota partnership owned that plant. Tesla can grow manufacturing capacity at a lower cost than if they had to find a new facility to manufacture each new vehicle.

As the company discloses in its financial filings with the SEC, there are a lot of "if's" to consider. The company has very little experience in manufacturing complete cars, there are doubts about customer adoption, and so forth. One big question would be which direction will the price of oil take. Will it continue rising, or will something occur to decrease the price of oil. For example the price of oil was rising to worrisome heights in 2008, until the financial meltdown struck and the price of oil plummeted. Electric cars are most popular when the price of oil is high.

In the meantime the company is racking up glowing reviews for the Model S, and amazing performance in race conditions. By that measure the Model S should prove popular with potential customers, and perhaps Musks' sales prediction will remain true.

Comments

I sold my SLK 320 for a Prius and am loving the 110 measured MPG I'm getting. I do miss the torque... But even with it's puny 11 miles electric only I can see the 'range anxiety' of electric cars is something experienced mostly by those who don't own one. I can find a charger pretty much anywhere I go if I'm willing to walk one or two blocks. And my gas budget plummeted from $300 a month to $35 (just a tank of 8.5 gallons of unleaded 87). I have a reservation for a Model X that should satisfy the cravings to never visit a gas station again, carry all my family places, and speed away on onramps. Can't wait..
My neighbor got a Hyundai Sonata Hybrid and let me drive it. It was kinda fun! However, recently, I got a 20 minute spin in a Model S in California. It was way past kinda fun. Granted this one was the Power model with all the goodies but the regular model is no slouch. Both of them beat my supercharged Audi A6 3.0T to 60mph and do it silently. The quality of the chassis and the car in general was very impressive. The driver's door on "mine" was a little difficult to latch closed all the way. That was the only build quality related problem I could detect. Handling is phenomenal and there are no rattles. There were 3 people in the car when I drove it and still the car pulled like a train. If electric cars could be charged in the time it takes to fill a gas tank and chargers were as plentiful all over the US as gas stations, I'd never consider a gasoline engine again. Electric is simpler, cleaner and better, especially the way Tesla does it.
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Guilt-free luxury - how could it miss? Especially when it's smooth, silent, and fast. Going for the luxury market initially was a smart move, selling to people who can afford the price of being early adopters. The price of gas shouldn't make much difference to this market - they're not so much interested in saving money on fuel as they are in the other advantages.