Elon Musk says Tesla will be profitable this quarter. Is that remotely plausible?

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Electric carmaker Tesla told investors today (pdf) that it lost more money last year than expected—some $396 million—but not to worry: This quarter, the company will make its first profit since going public in 2010.

Does that make sense?

Yes, the company is shifting focus from capital investment to efficiency. Last year was all about creating the infrastructure necessary to produce 400 of the company’s flagship Model S electric sedans each week. Now that Tesla has reached that important benchmark, it will be able to deliver 20,000 cars this year to customers while focusing on cutting costs.

No, a price hike is killing orders. The company saw a lot of orders, which require a refundable deposit, before a price-hike scheduled in early 2013, and it’s not clear if they’ll pick up to last year’s rates. It’s also still not clear how many potential buyers who reserved cars will follow-through when it comes time to put the full payment on their order.

Yes, they have enough reservations to fill out the year. CEO and founder Elon Musk repeatedly pointed out that they could close down all their stores and have enough orders, including reservations for 15,000 Model S cars, to sell off a year’s worth of production. The company opened eight more stores around the US at the end of last year, bringing the total to 32, and will open 15 to 20 more, including a store in Beijing, this year. That makes Musk confident that sales will continue to increase in the US and around the world.

No, they had that PR disaster with the New York Times. The recent fracas might exemplify the “range anxiety” problem that devils the electric car industry, and the company came off as prickly and pedantic in its response.

Yes, because they learned from the Times debacle and got attention. The company is building more “Superchargers” around the country to enhance the long-distance capabilities of the vehicle, and Musk hinted in a discussion with investors that he would have an announcement about an improvement in charging technology later this year. Besides, all PR is good PR, right?

No, they don’t have enough cash to keep expanding. The company has $200 million in cash on hand to spend on designing and producing its Model X sport utility, the next major model it plans to release.

Yes, because they’ll break even on cash flow. Rather than burning through about $102 million, as the company did in the last quarter, Tesla will break even on its operations thanks to increases in revenue, preserving its cash for investment.

Is your head spinning yet? Look at it this way: Tesla spent last year investing in production and hopes to spend this year selling what it can make. Given the company’s plans to focus on cost-cutting in the near-term, their expectation of profitability in the first quarter isn’t nuts. It’s the rest of the year—and the years ahead—that will be more challenging.



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