The automotive industry is undergoing a lot of developments with people spending a lot on luxury cars. Moreover, the emergence of electric vehicles has been a breakthrough as it leads to lower costs and no use of fuel. In fact, auto sales jumped 5.9% over last year, to 16.1 million units for the month of April.
Therefore, automotive retailers too are enjoying the benefits of growing demand for such expensive cars. One such beneficiary is Tesla Motors (TSLA), which posted its first quarter results recently. The quarterly numbers were ahead of analysts’ estimates. However, a lowered guidance sent its share price falling.
By the Numbers
Revenue grew 27% to $713 million over the prior year’s quarter, driven by higher sales of the most popular Model S sedans. The Model S sedan has resonated well with customers and is in high demand. Tesla sold a total of 6,457 units of the vehicle during the quarter, much higher than the expectation of 6,400 units. Also, the company produced more Model S cars (7,535) than estimated (7,400).
Even earnings were ahead of expectations, registering $0.12 per share as against the estimate of $0.07 per share. Also, automotive margins improved by 20 basis points over last year. This was despite an increase in the company’s R&D expense as well as SG&A expense. The automotive retailer spent more on R&D because it accelerated its efforts to develop the Model X. On the other hand, enhancement of customer support infrastructure pushed SG&A higher.
Tesla Motors plans to expand its footprint in China since there is strong demand for automobiles in this region. In fact, it also expects to have a production plant in the region, which should benefit the retailer in the future.
Also, the automobile retailer is expected to launch its new Model X next year. Model X is a sports utility vehicle and has the benefits of a minivan. It runs on electricity and caters to premium customers. This launch is delayed by the company which has made investors unhappy. This car will provide stiff competition to BMW’s i3 and i8.
Additionally, the company plans to set up a factory to make new generation batteries, called Gigafactory. This will result in lower battery costs. This will help Tesla produce a low cost electric car, if produced in high volumes. Hence, the car retailer will be able to increase volumes of the Model S. Moreover, the company plans to launch another generation three vehicle by the end of 2017. Gigafactory will help in making this vehicle possible at a low cost.
Although Tesla’s efforts look good, its outlook failed to please the investors. It revised its guidance downward for fiscal 2014. It now expects to produce a total of 8,500 units to 9,000 units of Model S vehicles in the coming months. In addition, it expects to sell a total of 7,500 Model S cars.
Tesla Motors has been doing well with decent quarterly numbers. Moreover, auto sales, in general, are expected to increase mainly because of the spring season since people have delayed their purchase mainly because of harsh winter conditions. Also, incentives provided by the automakers, such as discounts and free accessories, will attract customers. Therefore, Tesla Motors looks good to go, especially with the much-awaited launches in the months to come.