Tesla profits beat estimates; demand predicted to grow

The electric car manufacturer's increased first quarter profits were fueled in part by zero-emission vehicle credit sales to other car makers. They were also boosted by more efficient manufacturing. With the right financing, the company predicts its Model S electric car could now be accessible to 10 million American households. 

Tesla Motors Inc reported its first-ever profit that trounced Wall Street estimates on Wednesday and forecast global demand for its Model S electric car could surpass 30,000 vehicles a year.

Tesla reported adjusted earnings of 12 cents per share, triple the 4 cents per share expected by analysts, on average, according to Thomson Reuters I/B/E/S. The first-quarter results sent shares up 17 percent in after-hours trading.

Tesla now expects to deliver 21,000 Model S cars worldwide, up 5 percent from its earlier target of 20,000. But Tesla said it was already receiving orders for the Model S at a rate of more than 20,000 per year.

""There's potential for next year a fairly significant increase in volume as we really test the depth of the demand that's out there," Chief Executive Elon Musk said. "It's probably quite a bit higher than we had originally thought."

More than one million people visit Tesla's stores every quarter, executives said.

The Model S, Tesla's second model after the more expensive Roadster, is Tesla's effort to reach a broader group of buyers. A Model S equipped with a 60 kilowatt battery starts at around $70,000 before a $7,500 tax credit.

Tesla has offered a financing deal that the company hopes will make electric cars more affordable, which Musk said has already spurred a "meaningful improvement in demand" for the Model S.

"If our car was chiefly available for purchase and not by financing, I think that's maybe accessible to roughly 1 million US households," Musk told analysts during a conference call.

"As financed product with the right financing, fully optimized financing, I think it's probably accessible to the top 10 million households," Musk added.

Getting the hang of things 

During the first quarter, Tesla reported higher-than-expected revenue of $562 million. About 12 percent of its revenue, or $68 million, came from selling its zero-emission vehicle credits to other automakers.

Revenue from credits was about two times what Morgan Stanley analyst Adam Jonas predicted. Jonas said Tesla may be on track to get $150 million in revenue or more from this market.

Tesla said revenue from credit sales would tumble over the course of the year. Even so, the car maker reiterated that it expects to make gross margins of 25 percent in the fourth quarter of 2013.

Over the last few months, Tesla has become more efficient at building the Model S. During the first quarter, Tesla built 400 or more cars a week.

The number of hours required to build a car fell by nearly 40 percent from December to March. Chief Financial Officer Deepak Ahuja said there was more room for improvement.

Better inventory management contributed more than $30 million to Tesla's cash and reduced its logistics costs during the quarter. Premium freight costs have also fallen.

"Increasing production by over 3000% from Roadster to Model S was extremely difficult and many mistakes were made, but now we are starting to get the hang of things," Tesla said in a statement.

Tesla said it expected operating expenses to increase moderately in the second quarter. Research and development expenses are also expected to increase as the pace of product development picks up speed.

Tesla will spend about $200 million on capital expenditures in 2013. The company expects cash flow to be breakeven in the second quarter.

Tesla shares rose to $65.50 in after-hours trading, compared with a close of $55.79. Wall Street has been split on the automaker's prospects, with many investors betting that shares will tumble even as the stock has risen more than two-thirds this year.

(Editing by Dale Hudson, Matthew Lewis)