Tesla Projecting Years of 50% Growth Sparks Share Rise

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Tesla Motors Inc. projected a surge in orders for its Model S and said it’s accelerating production of the plug-in electric car, sparking a gain in the shares.

The company projects 50,000 Model S sales in 2015. Making that many “will be no problem,” Chief Executive Officer Elon Musk said yesterday on a conference call with analysts. Tesla raised its outlook to making more than 2,000 vehicles a week by the end of next year.

The company’s forecast includes 50 percent growth next year and “probably for several years.” Musk said Tesla will eventually need more assembly plants in the U.S., China and Europe. The company is “spending a lot to increase the production capability of the S,” he said, after a supply shortfall led to a curtailed fourth-quarter sales outlook. Tesla will also further delay the introduction of its first sport-utility vehicle while Musk continues to tinker with it.

“Demand is not our issue, production is our issue,” he said. “People don’t quite appreciate how hard it is to manufacture something -- it is really hard.”

The shares rose 4.4 percent to $241.18 at the close in New York. They have gained 60 percent this year.

Wait times continue to range from six or seven weeks to as long as four months, Musk said on the call. Interest in the all-wheel-drive version of the Model S that was revealed last month would indicate as many as 70,000 orders next year, he said.

‘Big Percentage’

More than half of next year’s Model S sales will be in North America, Tesla forecast yesterday. Its lone assembly plant in Fremont, California, was down for almost a month during the third quarter as the company prepared to increase output and begin making the all-wheel drive version.

“It’s like trying to change the wheels on the bus while it’s going down the freeway,” Musk said. “We’re growing our production by like 50 percent a year, year-over-year as far into the future as we can reasonably project, that’s quite a big percentage growth for manufacturing a large complex object. We’d like to grow faster, of course.”

To improve production capacity, Tesla is eliminating some Model S options, such as the colors green and brown, he said.

‘Enough Cash’

The delay of the Model X SUV introduction -- the second time it’s been postponed -- means that next year’s production is effectively sold out already. Customers who order one today probably won’t take delivery until 2016.

While Tesla is counting on sales of the Model X to help pay for development and production of the lower-priced Model 3 in 2017, the delay shouldn’t lead to a liquidity crisis, said Carter Driscoll, an analyst at MLV & Co. who has a buy rating on Tesla.

“They have enough cash,” he said. “As long as it doesn’t bleed into 2016, I don’t see them having to go back into capital markets. With the 50,000 baseline units for 2015 that Elon was so gushingly confident about, they’re not going to have cash-flow problems. It’s just a one quarter push-out. It’s about getting the Model X right, and it’s what they did with the Model S, so it’s not shocking.”

Morgan Stanley said last month that the Model X may be delayed until the third quarter of next year, noting prototypes “have been difficult to spot.”

And this isn’t the first delay for the SUV model. Musk had said initial deliveries would be by the end of 2014, then early

2015. He told Bloomberg Television that he was to blame for the delay.

“With respect to the X, I am somewhat of a perfectionist when it comes to product design,” he said. “It is hard to make an SUV that is beautiful and functional at the same time.”

Earnings, Sales

While Tesla beat analysts’ estimates with an adjusted profit of 2 cents per share, it fell short of estimates for vehicle sales in the quarter. The youngest publicly held U.S. carmaker delivered a best-ever 7,785 Model S cars, short of the 7,892 that was the average estimate of nine analysts surveyed by Bloomberg.

In addition, the company, which posted a $75 million net loss, cut its full-year sales forecast to 33,000 cars from 35,000, again citing the inability to make as many cars as people want to buy.

Musk said the company will eventually need more assembly plants, especially as it begins making the Model 3.

Factory Space

“It will really be driven by running out of factory space in California,” he said. “I would expect over time for there to be actual factories in China as well as in Europe as well as more factories in North America. Our goal is to accelerate the advent of electric vehicles. In order to do that, we need to make a lot of cars, and we’re also sort of happy over time to support other manufacturers in making electric vehicles.”

While vehicle assembly is running behind schedule, construction of a massive battery factory in Nevada, dubbed the “gigafactory,” is ahead of plan. The first cells should now be produced in 2016, “slightly earlier than originally scheduled,” he said in a letter to shareholders.

“Cell production and battery packs, those are the biggest problems on the supply side and they’re the impetus behind the gigafactory,” Driscoll said. “The factory should permanently resolve those problems since Tesla won’t be relying on a third party for that production.”

Tesla vowed to spend $350 million during the current quarter to accelerate gigafactory construction, expand production capacity and continue vehicle development.

Europe Price

In the mean time, Tesla may have to increase its prices in Europe to offset the relative weakness of currencies there compared with the dollar, Musk said.

“I certainly encourage anyone in Europe to purchase their car soon because we probably will have to make an adjustment there,” he said.

Tesla said earlier yesterday that the Model S received the maximum-possible five-star safety rating from the European New Car Assessment Program. It’s the only car this year to receive that designation as well as five stars in every subcategory of ratings from the U.S. National Highway Traffic Safety Administration, the company said.

Tesla, which doesn’t use model-year designations, said it improved its Model S in response to customer feedback, including more comfortable seats, larger sun visors, wider-opening rear doors and generally improved fit and finish.

Lane-departure warning and speed-limit alert are now standard features, the company said. Advanced cruise control, highway steering and emergency braking will be added via remote software updates in coming months, the letter to shareholders said.