Tesla Motors Prepares for Success

Tesla Motors (NAS: TSLA) said on Wednesday that it posted a net loss of $81.5 million in the fourth quarter, or about $0.78 a share. That was more than analysts' expectations, which had called for a loss around $0.63 a share, and came on revenues of $39 million, up 9% from the year-ago quarter.

But as earnings misses go, this one's hardly a big deal. The larger question facing Tesla right now is whether their business plan remains on track -- specifically, whether the company's first mass-market car, the Model S, is going to get to customers this summer as promised.

Fortunately for Tesla, the news on that front -- and some others -- looks quite good.

Upcoming models are still on track
Tesla reiterated on Wednesday that its plans for bringing the Model S to market are on track. The company's factory, a former Toyota (NYS: TM) facility, is almost fully equipped, and the company is already producing what it calls "beta vehicles." About 30 of the pre-production cars have already been built, and another 20 or so are planned.

These cars are being used for testing -- and their production is being used to fine-tune assembly and production processes. Meanwhile, sales efforts continue to find success, as the company took over 1,500 "reservations" -- which come with $5,000 deposits -- for the car during the quarter. More than 8,000 buyers have so far laid down money to reserve a Model S, an impressive number for a car that few people have actually driven.

Tesla's next model, the Model X SUV, was unveiled earlier this month -- and it too is already finding eager buyers, believe it or not. While production of the Model X won't begin until late 2013, and pricing hasn't been announced (though Musk did say that it would be "similar to a comparably equipped Model S"), Tesla has already started to take reservations on it as well -- and it had over 500 in the first day. As Musk pointed out, that represents roughly $40 million in potential sales, a nice chunk of business for a model that is almost two years away from market.

Daimler deal deepens
Tesla also disclosed a new aspect of its long-standing deal with Germany's Daimler (OTC: DDAIF.PK), the parent company of Mercedes-Benz. Daimler has asked Tesla to develop a full powertrain for an upcoming Mercedes. It's likely a small-volume model by Mercedes standards, but it's still a big step forward for Tesla.

While Tesla has previously supplied Daimler with battery packs and chargers for its electric vehicles, a contract to deliver a full drivetrain -- including the electric motor, transmission, and all the related software and controllers -- represents a coup for the upstart automaker, one that could add substantially to revenues in coming quarters. Tesla said that more details would be forthcoming from Daimler in the future.

About those revenues...
Musk described 2012 as "a year of two halves" for Tesla, for obvious reasons. He expects revenue for the full year to be in the neighborhood of $550 to $600 million, with most of that coming once deliveries of the Model S begin.

That's an achievable number -- if the Model S's rollout goes without a hitch. Musk expects to deliver about 5,000 of the new cars by year-end, a number that depends on production scaling up without problems -- and on early production models living up to Tesla's promises.

Tesla certainly appears to be doing all it can to avoid those problems, but only time will tell -- though I suspect the car's launch will go more or less as Musk hopes. The larger questions for Tesla remain, though: Will it continue to find enough new buyers to stay in the black once the initial cars are delivered? And will it be able to establish itself sufficiently in consumers' minds to head off the inevitable challenges from the global automakers?

The real risk to Tesla going forward
Tesla fans tend to discount that second possibility, but it's a real risk for the company, perhaps the biggest risk. Ford (NYS: F) and Nissan (OTC: NSANY.PK) are already producing mass-market pure electric cars with the Focus Electric and Leaf, albeit at a price and feature point well below Tesla's offerings, and General Motors (NYS: GM) has at least one coming to market soon -- on top of its electric-with-a-gas-generator Chevy Volt. It wouldn't take much for any of these companies to scale up their offerings into Tesla's market space.

In fact, if Tesla finds success, it's sure to happen. But right now, Tesla appears to be doing an excellent job of laying the groundwork for that success.

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