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Tesla Motors expecting first ever profit after steep losses in 2012

On the back of stronger than expected sales and production, the company ends several years of posting losses with the first profit ever for Tesla Motors.

On Sunday evening Tesla Motors announced they're expecting to be fully profitable in the first quarter 2013 financial results, following strong sales and production of the Model S since the beginning of the year. The company is in the middle of a rapid shift from posting steep losses in 2012 to a solid financial footing based on revenue from sales. To make those sales, Tesla's manufacturing is sustaining the necessary production rate for profitability.

In 2013 Tesla Motors posted a loss of nearly $400 million after selling 2,650 Model S's, but with costs outstripping revenue some wondered if Tesla would ever stabilize its finances. What made the difference is strong sales of the Model S during the first quarter of 2013. First quarter 2013 Model S sales exceeded 4,750 units, while previous guidance from Tesla's management had been sales of 4,500 units in the first quarter. As an example of the strong sales, the company announced they'd surpassed 500 deliveries per week for at least three weeks.

During 2012 Elon Musk made several statements predicting that Tesla would be profitable in the first or second quarter of 2013. This may have seemed like hubris to many, but his reasoning was that at 8-10,000 Model S sales per year would bring in enough revenue for Tesla Motors be cash-flow-break-even. That the company had over 10,000 Model S reservations in hand last summer and ended 2012 with over 15,000 reservations, was a strong indication that Model S sales would exceed the level for cash-flow-break-even. The big question is whether the sales volume would be enough for Tesla to be profitable on a GAAP basis.

Cash-flow-break-even is one thing, but for Tesla to be profitable by the definition that accountants care about is another. The announcement sent on Sunday made it clear, that they'd be profitable on both a GAAP and non-GAAP basis.

The sales of 4,750 Model S's during the first quarter equates to about 400 sales per week (spread over 12 weeks). Their factory is claimed to have a capacity of manufacturing 400 Model S's per week, or about 20,000 per year. Depending on what they meant by "surpassed 500 deliveries per week" they may be exceeding that manufacturing rate.

The real story here is that Tesla is sustaining a manufacturing rate required for enough sales for profitability.

“I am incredibly proud of the Tesla team for their outstanding work. There have been many car startups over the past several decades, but profitability is what makes a company real. Tesla is here to stay and keep fighting for the electric car revolution,” said Elon Musk, Tesla Motors co-founder and CEO. “I would also like to thank our customers for their passionate support of the company and the car. Without them, we would not be here.”