Tesla Results Seen Crimped on Car Deliveries, Credit Sales

Tesla Motors Inc.’s results were dragged down last quarter as government pollution credits declined and tight battery supply made it harder to outfit the carmaker’s electric vehicles.

The youngest publicly held U.S. carmaker, led by Elon Musk, today may post earnings of 7 cents a share, excluding some items, according to the average of 10 analysts’ estimates compiled by Bloomberg. A year ago Tesla earned 12 cents a share on the same basis, its first ever profit, buoyed by a surge in California zero-emission vehicle credit sales and savings from the early repayment of a federal loan. Analysts project a loss on a GAAP basis.

This year’s first quarter won’t be as lucrative with the contraction of clean-car credit sales in California combined with slower vehicle deliveries. Sales in China, the world’s largest auto market, didn’t start until last month, so they won’t be included in today’s results. While deliveries will rise from a year earlier, they will probably be less than the record 6,892 set in the fourth quarter.

“Constraints in supplies from Panasonic and 1,000 cars on the water headed for China” will keep the automaker from setting another record, said Craig Irwin, an analyst with Wedbush Securities, who rates Tesla outperform.

As Tesla’s stock-market valuation has swelled to $25.7 billion as of yesterday’s close from $6.4 billion a year earlier, the Palo Alto, California-based company in 2014 plans to boost Model S output by 56 percent and lift China sales to a level matching those in the U.S. by as early as next year.

Better Than Twitter

DoubleLine Capital LP’s Jeffrey Gundlach said he would rather own electric carmaker Tesla Motors Inc., which could prove to be a “killer” investment, instead of social network Twitter Inc.

“This could be wildly transformational the way electricity and electromagnets were,” Gundlach, 54, said yesterday in an interview. “What does Twitter create? It creates information flow but it’s not really creating anything. If you’re going to buy a high flier, I’d rather buy Tesla.”

Twitter fell 18 percent yesterday to $31.85 after restrictions were lifted on sales of shares by insiders and early investors. Gundlach said a “speculative” bet on Tesla has a 30 percent chance of handing investors a huge return.

Analysts including Irwin, Barclays’s Brian Johnson and Robert W. Baird’s Ben Kallo say gauging China’s demand for Tesla vehicles is critical. While just a handful of customers in China, where the Model S starts at about $118,000, received their cars in April, China-bound shipments will rise quickly, Kallo said.

Delivery Predictions

“We’re going to get more information about what they’re doing in China; Elon was just there,” Kallo said. “It’s an important market going forward, but it’s still building up and the fourth quarter is when we’ll see some nice deliveries there.”

Revenue may reach a best-ever $704.5 million, the average estimate of 10 analysts surveyed by Bloomberg, up 25 percent from $561.8 million a year ago. The increase may come even in the absence of the $68 million Tesla got in 2013’s first quarter from selling “zero-emission vehicle” credits other carmakers need to comply with California pollution rules, said Stifel, Nicolaus & Co. analyst James Albertine, who rates the carmaker a hold.

“I don’t think we’re modeling any ZEV credits in the quarter,” he said.

Globally, the company may have delivered 6,429 Model S cars to North American and European customers in the first quarter, the average of seven analyst estimates compiled by Bloomberg. Projections range from 6,200 by Albertine to Johnson’s 6,600.

Titanium Shield

Tesla said in February it expected to deliver 6,400 of the cars, 31 percent more than a year earlier. The cars are priced in the U.S. from $71,000 to more than $100,000.

U.S. regulators in March concluded a review of Tesla’s battery pack after two crash-related fires, saying they hadn’t identified a safety defect. To further reduce fire risk, the company said it would add a titanium shield to the Model S pack.

That fix may cost $10 million to $20 million in the quarter, said Johnson and Albertine.

Details on the timing and strategy for its Model X crossover, due in 2015, and updates on a lower-priced electric sedan in development would also be important, Kallo said.

Along with the outlook for China, analysts and investors mostly want an update on Tesla’s plans for its battery “gigafactory,” said Johnson. “I doubt they’ll provide one because the ball is really in Panasonic’s court,” he said.

Gigafactory Plans

Musk, 42, in February announced plans for the world’s largest lithium-ion battery factory that he said could cut Tesla’s pack cost by at least 30 percent, and produce cells for stationary power-storage devices. Panasonic Corp., a Tesla shareholder and its main lithium-ion cell supplier, hasn’t committed to investing in the gigafactory.

Tesla is studying plant locations in Arizona, Nevada, New Mexico and Texas and may choose sites in at least two states, Musk said in an interview last week. Groundbreaking may occur at two sites simultaneously as a way to ensure one is ready to go into production by 2017, Musk said.

“Anything they have to say about the gigafactory, positively or negatively, is going to perk everyone’s ears,” Irwin said. “We need to hear at some point what the consortium looks like, because it’s not going to be just Tesla alone.”

Tesla releases results after the market closes, followed by a conference call with analysts at 5:30 p.m. New York time that’s to be webcast at http://ir.teslamotors.com.

Tesla rose 0.8 percent to $209 at 9:30 a.m. New York time. Through yesterday’s close, the shares had advanced 38 percent this year, while the Russell 1000 Index had gained 1.1 percent.

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