General Motors CEO Dan Akerson must be so jealous. After Tesla Motors announced a $30.5-million second-quarter loss Wednesday, its stock soared $17.02 per share in after-hours trading to $151.25, as the electric car company’s CEO, Elon Musk, and CFO, Deepak Ahuja, answered Wall Street analysts’ questions in an online conference call. GM, which has been solidly in the black for fourteen consecutive quarters, would kill for such positive investor reinforcement.
Now, I like the Tesla Model S as much as most of my fellow auto journos, and Musk has proven himself to be a tough, smart automaker with a breakthrough car. But Wall Street’s reaction and the fawning analysts fairly reeks of the kind of irrational exuberance that collapsed the market in September 2008, and before that when the Internet bubble burst in the early ‘00s, and probably another dozen times before that, back before 1929 to the beginning of the Industrial Age.
Before the conference call had begun, slate.com’s Matthew Yglesias called out Tesla for “non-GAAP” (generally accepted accounting principles) procedures, for the way it counts its “innovative loan/purchase/buyback scheme.” He’s referring to a financing arrangement for the Model S, which retails for about $100,000 for the long-range version. Wells Fargo and US Bank finance the cars with a guaranteed buyback price.
To Yglesias, this is Tesla Model S lease program, in which the company expects a good residual value to lower the monthly payments and make a rather expensive luxury car affordable to green hoi polloi. When another automaker leases a car, its payments are counted as revenue over time, on a month-by-month basis, not all at once the way a cash buyer or finance company would give the car’s full value to the dealer and automaker.
“To call it leasing would be incorrect,” a Tesla spokesperson replied to my questions, via email. “We offer financing plus a resale guarantee.” Tesla does count it as lease accounting, she says, because some buyers will return their car, while others will keep it. The company says it will “always report on a GAAP basis. But we will also report a non-GAAP as we believe these financials are useful as they align with the underlying cash flow activity and timing of vehicle deliveries.” About 30 percent of Tesla’s sales were the result of this arrangement.
Another unusual accounting procedure, at least in the auto biz, is that Tesla counts research & development as an operating expense, not a cost against revenue. Tesla’s gross revenue was $405.1 million, up from $26.7 million a year ago, but off slightly from the first quarter’s $561.8 million. An Automotive News reporter Tweets that Tesla’s net loss would have been $100 million if not for California and federal zero-emissions vehicle credits.
Tesla says it improved its production rate from 400 Model S cars per week, to 500 per week in the second quarter. It builds the electric hatchback/sedan at the old GM-Toyota NUMMI joint venture plant in Fremont, California, and has begun final assembly and vehicle testing in Tilburg, Netherlands. A Tweet I received after the conference call says the price in the European Union is about 125,000 euros, which is $166,000, “but that’s dirt cheap because of luxury tax exemptions.”
Musk told analysts he has “high confidence” that Tesla can build and sell the Model X, with a 200-mile range, for a sticker price of $35,000, assuming no federal or state incentives. He also expects global sales for Tesla to reach an annual rate of 40,000 units by the end of 2014. North American sales are headed toward 20,000 per year, he says, and when you add in the European Union, and the Chinese market Tesla is about to enter, plus smaller markets, it’s “a pretty safe number to assume.”
The Tesla CEO also says he doesn’t expect demand for the Model S to diminish as the car ages. It will be selling just as well after seven or eight quarters on the market, he says.
Musk’s biggest challenge now is a better flow of parts from suppliers. He told analysts that Tesla’s need for batteries could exceed the entire laptop industry.
“We’re striving to be demand-limited, rather than supply-limited,” Musk says, while acknowledging that Tesla is “dumb” at making cars, even though its learning curve has impressed those inside, as well as outside the auto industry. The problem, he’s likely learning, is that suppliers serve their biggest customers before they serve their little, boutique customers. Anyway, Musk expressed a bit of scorn for one of the big guys when an analyst asked him about the i3.
“I’m glad to see BMW bringing an electric car to market,” Musk says. “That’s cool. There’s room to improve. I hope they do.” This response launched a chuckling fit from both Musk and the analyst.
Meanwhile, in Marseilles, France, BMW executives showing off their new i8 were said to be very complimentary about Tesla.