Tesla Makes History By Posting First Profitable Quarter In 10 Years
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Tesla’s critics didn’t have much to say yesterday when the company reported its first quarterly profit–$15 million—in its 10-year history. It wasn’t much, but the $0.12 per-share profit blew analysts’ expectations of $0.03 out of the water. Investors jumped at the news, buying up shares today and pushing the company’s stock up 25 percent to nearly $70.
The news was monumental for more than the electric auto-maker’s investors: the profit makes Tesla the first new American car company to reach financial success in more than half a century. In fact, when Elon Musk founded the company 10 years ago, few had faith in its longevity. And at $100,000-plus, Tesla’s first car, the “Roadster,” was too expensive for any but 1-percenters to own. But with the release of its second car, the “Model S,” sales have increased, thanks to somewhat lower prices, government subsidies and Consumer Reports calling it the best car ever tested.
To say sales have increased recently is quite the understatement. According to Tesla’s first-quarter earnings report, sales were up 83 percent from the previous quarter, reaching $562 million. Kelley Blue Book senior analyst Alec Gutierrez told Business Insider Tesla’s success proves that if a company builds attractive vehicles that are fun to drive, consumers will purchase them. But Gutierrez warns that Tesla still has a rough road to travel.
“While Tesla has found success in the premium luxury segment, even surpassing sales volume of the more affordable Chevrolet Volt, they will run into the same difficulties faced by Chevrolet, Nissan, and others in trying to sell an electric vehicle to mainstream consumers that will find it more difficult to pay the premium prices associated with electric vehicles,” he wrote in an email.
Still, the fact that the company sold about 5,000 of the $60,000-plus Model S cars in the first quarter isn’t too shabby. Plus, Tesla was able to reduce the hours require to build one of its cars by nearly 40 percent between December and March. According to its earnings report, Tesla hopes to continue to lower costs, allowing it to produce more affordable vehicles. In fact, its third-generation car is slated to be priced lower than the Model S. It also stands to attract customers based off of its new service and warranty programs. As recently reported by Wall Street Insanity, Tesla recently announced a fleet of Model S and Roadsters available to customers whose cars are in need of repair, as well as a $600 annual service plan option and an unconditional warranty on its Model S battery.
“Obviously, there is a huge amount of work ahead to improve the gross margin of Model S, but we have a clear roadmap to achieve component cost reductions, as well as achieve additional manufacturing and logistics efficiencies, Musk wrote in the earnings report. “We expect that our gross margin will continue to rise into the second half of the year to our target of 25 percent.”
