Tesla Motors ends year with higher sales but still a big loss

Tesla Motors Inc. narrowed its losses in both the fourth quarter and the year as the electric car maker ramped up sales both in the U.S. and internationally and collected about $150 million from the sale of environmental credits.

Shares of Tesla soared to a  record when it released the financial report after the stock market closed, rising $24.10, or 12.5% to $217.74 in after-hours trading Wednesday.


Tesla said that it lost $16.3 million in the fourth quarter. That compared with a loss of $89.9 million a year earlier.

But after making special adjustments to account for the deferred profit from automotive leases and other factors, Tesla said it earned $46 million, or 33 cents a share. That exceeded the Wall Street analyst consensus of 21 cents a share.

For the full year, the automaker lost $74 million, an improvement from its 2012 loss of $396.2 million.

Revenue more than doubled to $615.2 million for the quarter. Revenue for the year rose almost fivefold to slightly more than $2 billion.

That revenue included $129 million from the sale of California environmental credits last year and at least an additional $15 million in other credits, the automaker said.  In its initial report to shareholders Wednesday, Tesla did not provide a breakout for all of its environmental credit sales.

"We produced more cars than originally expected in the quarter, aided by manufacturing, design and quality improvements, but also strong efforts from our supply chain," said Elon Musk, the Palo Alto automaker's chief executive.

Tesla is building about 600 of its Model S sedans a week. It delivered 22,477 cars last year. Analysts say the automaker needs to increase its sales volume and drive down the cost of its raw materials and supplies if it is ever going to become consistently profitable.

Musk said Tesla is starting to gain that type of scale.

"We expect to deliver over 35,000 Model S vehicles in 2014, representing a 55% increase over 2013," he said.

The company plans to come out with its second model, a sport utility vehicle based on the Model S that will be called the Model X late this year.

Production will grow to about 1,000 cars a week by end of the year as Tesla expands the capacity of its factory in Fremont, Calif., and addresses supplier bottlenecks.

Getting enough batteries to power its electric cars has limited sales.  But Musk said Tesla's battery cell supply will improve significantly in the second half of 2014.

"As volume increases, additional economies of scale will come into play, resulting in further improvements in gross margin," Musk said.

Improving its battery supply and reducing expenses presents a significant opportunity for the automaker, said Craig Irwin, an analyst with Wedbush Securities.


"Tesla has the ability to dramatically reduce the cost of the battery by almost half in roughly the next three to five years," Irwin said.

That cost reduction also would make Tesla's so-called generation three electric car – a vehicle expected to  sell for less than $40,000 when it hits the market in several years – to be an economically viable, high-volume car, Irwin said.

Despites its losses, Tesla remains well capitalized.

Its cash on hand increased to $846 million at the end of 2013 as the automaker generated $130 million of operating cash flow and $40 million of positive free cash flow (cash flow from operations less capital expenditures) in the quarter.

Musk said expansion into international markets will become an important source of business for the automaker this year.

The first Model S sales in China are planned for this spring.

"The potential in Europe and Asia is even more significant. Towards the end of the year, we expect sales in those regions combined to be almost twice that of North America," Musk said.

Musk also said that Tesla plans to soon provide more information about the so-called Tesla Gigafactory – a battery research and production venture that "will allow us to achieve a major reduction in the cost of our battery packs and accelerate the pace of battery innovation."

Previously Musk has said Tesla is looking for partners to join the venture.


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