Tesla: ‘False Profits’ and a Bullish Market

It’s been a great year for Tesla Motors Inc. (TSLA), which everyone’s eyeing for a takeover: the company’s stock is up 194% this year, it’s recorded its first ever quarterly profits, and it just paid off a government loan nine years early.

It’s even earned itself the moniker “America’s fourth automaker”. Shareholders are ecstatic and potential investors are increasingly bullish—but there’s another story here, if you dissect the financials.

So Tesla just released its Q1 2013 financials, showing its first profit: net income of $11 million on total revenues of $562 million. However, that profit was not on its core product—electric vehicles—but on its sale of emissions offset credits. It earned $68 million on the sale of Zero-Emission Vehicle credits, courtesy of the state of California, and $17 million on the sale of greenhouse gas emission credits.

It also had a couple more tricks up its sleeve, including $11 million in “earnings” from warrant liability reversals and $7 million through foreign currency adjustments.

This means its core business, which is the Model S all-electric luxury sport sedan. In fact, on this it lost upwards of $90 million, according to the Wall Street Journal, which seems to have it out for Tesla and the government’s loan largesse.

Dissecting these financials is fair, but it’s not the only story here. While the investors seem to be overly bullish on Tesla with much thought for the real numbers behind the numbers, there have been some impressive achievements.

Last week, Tesla managed to pay off a $465 million government loan issued in 2010. Regardless of how it managed this, it’s impressive because it’s nine years early and because it removes a major hurdle for a takeover.

And the market loves Tesla: It’s trading for over 800 times what its earnings are estimated for this year, and it’s valued at over $5 billion, according to Bloomberg.  Shares closed on26 June at $105.72, up 3.24%.

By the end of last year, Tesla had sold 2,450 of its electric sports car Roadsters that retail for $109,000; and it’s now started shipping the Model S sedan and is eyeing over 20,000 deliveries for this year, retailing at $69,900 a pop. It’s impressive, but still far from ‘mass’ marketing, and the prices aren’t for the faint of heart.

Is Tesla ripe for takeover? Probably not just yet. CEO Elon Musk, who owns a 24% share, should hold out for more and it’s too early for that—especially since we’re looking effectively at the most expensive automaker in the US with first-time ‘false profits’ that don’t reflect its core product.  But once it manages to prove itself through its financials—without resorting to emissions credit sales—the takeover will be big.

In the meantime, revenues are revenues, and money is money. The market likes Tesla, so we’re listening.

This piece is cross-posted from Oil Price.com with permission.

3 Responses to "Tesla: ‘False Profits’ and a Bullish Market"

  1. David   June 30, 2013 at 2:57 am

    If Tesla's profits are false so are those of hydrocarbon car makers because they aren't paying for the atmospheric sink into which their cars deposit pollutants externalizing damage costs on to human and ecosytem health. Nor are they paying the cost of the irreversible damage they do to the life support system we call Earth. That Tesla earns legitimate revenue from reducing pollution while firms which make pollution possible is evidence of idiosyncratic and incoherent regulation. The result: malfunctioning markets which under price hydrocarbon cars because their externalities are invisible through exclusion leaving low or zero emission vehicles looking relatively more expensive. Introducing true-cost accounting and transparent pricing to correct information failure would put all vehicles on a level playing field and perhaps shift demand towards low and zero emission vehicles (and more resource efficient shared-use markets?).

    • jrj90620   July 2, 2013 at 11:26 am

      Why should the manufacturers pay for pollution.How about a tax on fuel,paid by drivers?

      • Kieran   July 23, 2013 at 10:30 pm

        Because its hypocritical to call teslas profits "false" and then to call another car companies profits "real" when hydrocarbon car manufacturers don't have to pay a tax.

        Not saying they have to pay, just pointing out hypocrisy.