As Tesla Eyes Profit, Elon Musk Wants to Punch Himself in the FaceBy
In a letter detailing Tesla Motors’ fourth-quarter results on Wednesday, Elon Musk seemed to deliver a lot of what investors have been hoping for. He vowed that the company would turn a profit in its next quarter. He said that Tesla’s factories were humming and would meet the demand for 20,000 all-electric Model S sedans this year. He showed (PDF) that revenue surged 500 percent sequentially to $306 million. And he laid out a framework for getting Tesla’s gross margins up around 25 percent.
Instead of greeting this as a feedbag of good news, investors busted Tesla in the gut. They sent shares down about 5 percent after-hours. The main concerns seemed to be Tesla’s larger fourth-quarter loss—$89.9 million, vs. $81.5 million a year earlier—and a lack of clarity on how Tesla will get costs down. There also seemed to be some worry that people who had put $5,000 down to reserve a Model S were now backing away from actually buying the car.
During a conference call with Wall Street analysts, Musk did his best to knock down all the gripes. “We are not demand-constrained,” Musk said. Tesla added 6,000 reservations in the fourth quarter, up from 2,900 in the previous quarter. The company has capped its production at 500 cars per week to ensure quality, according to Musk. So demand continues to outstrip supply by quite a margin. The hope is that 4,500 cars will leave Tesla’s Silicon Valley factory this quarter.
As for the costs, Musk noted that Tesla had to pay a ton of overtime last quarter in order to meet its shipping commitments. Workers were putting in 68-hour weeks, on average. As Tesla has fine-tuned its manufacturing operation, workers have moved down to 50-hour workweeks. Musk says he’ll look to get rid of part-time workers to further lower Tesla’s costs.
With production rising, Musk seemed confident that suppliers will cut Tesla some breaks as well. “Suppliers are starting to take our volume seriously and offer us prices that are competitive in the market,” he said.
In one of his more colorful moments, Musk complained that Tesla was forced to do some ridiculous things to get parts in time. “We had to fly a lot of stuff,” he said. “When you fly something, it can cost 10 times as much as shipping by sea or rail or truck. We have to fly some tires from the Czech Republic. I wanted to punch myself in the face for that one.”
In the coming months, Tesla will expand its network of super-fast, free charging stations along highways. The next charging stations will appear on the East Coast and in Texas, Washington, and Illinois. The navigation system in the Model S will find the charging stations on its own and route drivers toward them. “We are very close to that,” Musk said.
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