Tesla Electrifies Wall Street. Next Stop: China

Tesla's stock price has increased by a whopping 280% so far this year

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Stephen Lam / REUTERS

Elon Musk, Chief Executive of Tesla Motors and SpaceX, smiles during the Reuters Global Technology Summit in San Francisco June 18, 2013.

Tesla is on a roll — and the company hasn’t even shifted into high gear yet.

Elon Musk‘s electric-car maker delivered earnings results on Wednesday that were much better than Wall Street had expected, sending the company’s stock price soaring more than 14% in after-hours trading. The results slammed the brakes on Wall Street bears, who had been betting that the company’s stock would decline following a tremendous run in which Tesla shares have increased by a whopping 280% so far this year.

Tesla’s results were driven by deliveries of 5,150 vehicles over the last three months, surpassing the company’s expectation of 4,500 deliveries. Tesla’s production rate increased by 25% from 400 to almost 500 vehicles per week, the company said. Although the company acknowledged that its profits were “still modest in absolute terms,” net income increased by 70%, driven by booming demand for the company’s Model S sedan, the most popular electric car in the United States.

Tesla said that it lost $30.5 million, or 26 cents per share, last quarter, compared to a loss of $105.6 million, or $1 per share, during the same period last year. Excluding one-time items and lease accounting — which spreads lease revenue out over several years — the company earned 20 cents per share. Overall revenue jumped to $405.1 million from $26.6 million one year ago, beating analysts expectation of $390 million.

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Tesla said that it had sold 10,500 Model S vehicles — which at $70,000 for the base model is hardly cheap — in the first six months of 2013. The company is expanding aggressively into Europe, and this week began delivering its first cars to Norway, Switzerland and the Netherlands. Tesla said it opened seven retail locations last quarter for a total of 41, and said it plans to open in first store in China by the end of this year. Tesla is working to bring its next car, a sport utility vehicle called the Model X, to market as soon as next year. The company predicted that by 2014, annual vehicle sales could reach 40,000, the company said.

Tesla’s strong results came just months after the company reported the first profitable quarter in its 10-year history. Earlier this year, Consumer Reports gave the Model S a near-perfect rating of 99 out of 100 points. “What’s more impressive than even the profit numbers are the increasing rate of production and growing margin that they’re making per vehicle,” Karl Brauer, an analyst with Kelley Blue Book, told Bloomberg. “They’re selling a lot more vehicles than I think a lot of people expected.”

In May, Tesla said that it had repaid the entire $465 million loan it received from the U.S. Department of Energy, nine years ahead of schedule. The U.S. loan was part of the government’s 2010 Advanced Technology Vehicle Manufacturing Program, a $25 billion fund authorized by Congress, signed by President George W. Bush, and awarded under President Obama. The loan repayment was a major vindication for Tesla, which was branded as a “loser” company by Mitt Romney during his unsuccessful 2012 Republican presidential campaign.

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“Our financial position and balance sheet have never been stronger,” Musk said in a letter to shareholders, adding that the company ended the quarter with $747 million in cash. Musk said the company expects to spend about $150 million in the second half of the year on capital expenditures, including an expansion onto 31 acres of land adjacent to its current factory in Fremont, Calif. “The growing demand for Model S gives us the confidence to invest in additional production capacity,” Musk said.

Tesla is rolling out new “Supercharger” stations, which are 33% faster than the current version and allow Tesla owners to replenish half a charge in 20 minutes for free. “Model S owners now have access to free Supercharging between Portland and Vancouver, between St. Louis and Chicago, and across a substantial number of major inter-city routes in the Northeast, California and Florida,” Musk said in his letter to shareholders.

The company is also rolling out a faster fueling option, automated battery pack swapping, which allows drivers to “swap in a fully charged battery pack in as little as 90 seconds.” The company said it plans to launch this technology at a handful of Supercharger stations in California later this year. “If you pull into one of these Tesla stations with a Model S, you only have to answer one question: do you prefer faster (pack swap) or free (charging)?” the company said.

One possible roadblock for Tesla’s growth? The company is not currently able to get the parts it needs to build as many cars as it would like. “There are still some bottle necks in our supply chain that need to be resolved,” Musk wrote. Major parts suppliers have only recently begun to take Tesla’s growth potential seriously, he told Wall Street analysts. “While we are dealing with these bottlenecks, there remains some uncertainty in our ability to increase production as rapidly as we would like.” With financial results like Tesla delivered last quarter, those bottlenecks might clear up soon.