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Tesla Rises After Posting Surprising Quarterly Earnings

Aug. 7 (Bloomberg) -- Tesla Motors, the electric-car company led by Elon Musk, reported second-quarter results that surpassed analysts’ expectations, on a Model S sedan delivery surge. Bloomberg's Matt Miller reports on "Street Smart." (Source: Bloomberg)

Tesla Motors Inc. (TSLA), the electric-car company led by Elon Musk, rose to a record after posting second-quarter results that surpassed analysts’ estimates on a surge in Model S sedan deliveries.

The company reported yesterday an operating profit of 20 cents a share, including 15 cents related to a leasing program. Even without that provision, results exceeded the average of 10 analysts’ estimates for a 20-cent loss, according to data compiled by Bloomberg. On its operating basis, Tesla said it will make money all year, even as it expands to Europe and Asia.

Shares of the Palo Alto, California-based company jumped 14 percent to $153.48 at the close in New York, bringing its market value to more than $18 billion. Model S deliveries totaled 5,150 in the quarter, topping the company’s target of 4,500, and Musk said an annual selling rate of 40,000 by the end of next year looks “pretty safe.”

“We’re very encouraged that they’re saying the order rate for the Model S in North America has remained at 20,000 units,” Dan Galves, a New York-based auto analyst with Deutsche Bank, said in a phone interview. “That gives us a lot of confidence of Tesla reaching at least 40,000 globally, once the non-North American markets are opened up.”

Photographer: David Paul Morris/Bloomberg

A Tesla Motors Inc. vehicle is displayed during the 2013 North American International Auto Show (NAIAS) in Detroit, Michigan. Close

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Photographer: David Paul Morris/Bloomberg

A Tesla Motors Inc. vehicle is displayed during the 2013 North American International Auto Show (NAIAS) in Detroit, Michigan.

Profit Adjustments

Tesla began its leasing program in April, reducing net income by $19.3 million. The operating profit also excludes $16 million in costs for early repayment of a U.S. Energy Department loan, according to a statement. The company had $19.3 million of stock-based compensation expense that it excludes from the operating figure.

Revenue surged to $405.1 million, exceeding the $387.9 million average of 10 analyst estimates compiled by Bloomberg, from $26.7 million a year earlier when Tesla posted a net loss of $105.6 million. The net loss was $30.5 million.

Galves said he “didn’t see any issues” with the items Tesla excluded to calculate operating profits. Many technology companies compensate employees with stock, and it’s common to leave out the cost since it is a non-cash expense, he said. He attributed Tesla’s large earnings beat over analysts’ estimates to the company’s increasing Model S volume and higher than expected revenue from zero-emission vehicle credits.

“These ZEV credits are very difficult to predict,” said Galves, who has a buy rating on the stock. “We don’t think the levels that they’re generating from that are sustainable.”

Revenue from the sale of those credits slid to $51 million from $68 million in the first quarter.

‘Very Vague’

Dave Sullivan, an analyst at AutoPacific Inc. in Ann Arbor, Michigan, said he is skeptical of how Tesla is booking revenue from leasing. He said the current method is “very vague” and is difficult to compare with that of other automakers.

Sullivan said he also would like to see Tesla set aside a larger pool of cash in case any of its cars are recalled or another “hiccup” occurs.

The automaker reported cash and equivalents of $746 million at the end of the second quarter. Tesla said it had restricted funds of $1.36 million current and $7.06 million non-current, without giving details of what the money is for. In its U.S. regulatory filing for the first quarter, Tesla said it had a warranty provision of $14.2 million as of the end of March, up from $484,000 a year earlier.

“Even the untouchable Toyota has had their fair share of issues,” Sullivan said in a telephone interview. “I would really like to see them be a little more conservative.”

Shanna Hendriks, a Tesla spokeswoman, didn’t respond to an e-mail seeking a comment on Sullivan’s remarks.

Winning Customers

The Model S, priced from $69,900 before a $7,500 tax credit, received the highest rating ever from Consumer Reports, which praised its sporty handling and luxury interior. Musk said the sedan is winning customers who had owned Toyota Motor Corp. (7203)’s Prius and Daimler AG (DAI)’s Mercedes-Benz E-Class. Toyota and Daimler are investors in Tesla and buyers of its battery packs.

Tesla’s Model X sport-utility vehicle remains on track to begin sales late next year, he said, adding that its development is “swiftly rising” among the company’s priorities. The SUV will be priced about the same as the Model S, he said last month in a post on Twitter that has since been deleted.

Beyond that, Musk said he has “high confidence” that Tesla will be able to produce a more affordable car with a 200-mile (320-kilometer) range for about $35,000.

Profit Forecast

The company said its operating margins were 22 percent, up from 17 percent in the first quarter. Tesla said it expects to post operating profits and generate cash every quarter in 2013, even excluding sales of green-car credits to other automakers.

“What’s more impressive than even the profit numbers are the increasing rate of production and growing margin that they’re making per vehicle,” Karl Brauer, an analyst with Kelley Blue Book in Irvine, California, said in an interview.

Tesla began delivering the first Model S sedans to customers in Europe this week and is preparing to export to Asia late in 2013. Musk, who is also the company’s biggest investor, has said that over time two-thirds of Tesla’s sales will come from overseas markets.

Musk said he anticipates China and Japan becoming important markets for the Model S. The company plans to open a store in Beijing by the end of 2013, and Musk said Tesla is working on a more comfortable rear seat for China, where many car-buyers have chauffeurs. Tesla has a goal of making the same margin on each car in every country, Musk said.

“We don’t want to rip anyone off,” Musk said on the call. “In China, it’s quite common for manufacturers to mark up the cars in a pretty huge way. We will not be doing that.”

Tesla projected Model S sales rising to an annualized rate of 40,000 sedans by the end of next year if demand in Asia is as strong as in North America and Europe.

The company expects to deliver “slightly” more than 5,000 Model S cars this quarter and 21,000 worldwide this year.

“They’re selling a lot more vehicles than I think a lot of people expected,” Kelley Blue Book’s Brauer said.

To contact the reporters on this story: Megan Durisin in Southfield, Michigan, at mdurisin@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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