Tesla Motors' Big Surprise


This wasn't a surprise: Tesla Motors (NAS: TSLA) lost a bunch of money in the second quarter -- despite a big increase in revenues.

The Silicon Valley electric-car start-up posted a loss of $0.53 a share on revenues of $58.2 million for the quarter. Both of those numbers exceeded consensus Wall Street estimates, but the trends weren't a surprise: Demand is strong (by Tesla standards, at least) for the company's current car, the Roadster, while development of the upcoming Model S sedan is burning big bucks.

The big surprise was elsewhere -- a hint of a huge new deal with mighty Toyota (NYS: TM) .

Tesla's big surprise
Tesla has parts-and-technology deals in place with Mercedes maker Daimler and battery supplier Panasonic (NYS: PC) , but its deals with Toyota are the ones that have attracted the most attention from investors. Thanks to the Japanese giant, Tesla has a factory, a contract to help develop the electric version of Toyota's RAV4 SUV, and a very visible patron in Toyota CEO Akio Toyoda, who famously test-drove a Roadster last year with Tesla co-founder and CEO Elon Musk.

That RAV4 contract delivered $19 million to Tesla's bottom line during the quarter, and it's expected to bring about $100 million after the deal was expanded in July. But on Wednesday, Musk hinted that much more may be on the way: During a call for analysts, Musk said the company was discussing a deal with Toyota that would be "an order of magnitude" larger than the July contract.

That means billion-with-a-B, the company confirmed after the call. It's not yet a done deal, and we can only guess at the details, but that kind of contract would transform Tesla from a long-shot start-up carmaker to a serious, credible industry supplier.

Maybe even a profitable one. That would be a nice surprise for shareholders.

A smarter route to profitability?
Musk has talked brashly of "disrupting" the global auto business, but I've long thought that the company's best path to sustainable profitability would be as a supplier, not a carmaker. The barriers to entry as an auto manufacturer are immense in today's low-margin, globalized car market, but Tesla's experience with electric power trains makes it a valuable potential partner for big automakers looking to up their electric game.

Technologically, Tesla's kind of a one-trick pony, but it's a good trick. The Roadster was the first, and is so far the only, all-electric car that meets global quality expectations with a range comparable to conventional gas-powered autos. To some extent that range advantage is due to the Roadster's expensive battery pack (and corresponding six-figure price point), but the Tesla systems that manage those batteries are good enough to have attracted Toyota's attention, and Toyota is no green-car slouch.

Intriguing possibilities going forward
Tesla was never likely to make it as "just" a carmaker. Plain and simple, the company isn't likely to ever have the scale or resources to compete profitably with the likes of Ford (NYS: F) or General Motors (NYS: GM) , much less the German luxury-car makers that dominate the segment Tesla's hoping to enter with the Model S. A niche producer of a few thousand expensive cars a year for the world's gadget geeks? Maybe. But that's not a route to the kind of profitability Tesla shareholders are expecting.

But now we can at least credibly imagine Tesla as the outsourced center of Toyota's electric-car expertise. Could that lead to profitable tie-ups with other automakers? Or maybe even a buyout offer? Tesla's market cap is still under $3 billion -- even an offer with a fat premium wouldn't strain any of the big automakers too badly.

These are just possibilities right now, of course. But they're worth close watching, because this company seems to have a way of getting more interesting every quarter.

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