Tesla Set to Blow Away Guidance

Numbers suggest company far outperformed Q3 targets

On September 29, I published a review of my new Tesla Model S. Two days later, a Model S caught fire in Washington State after running over a curved piece of metal that fell off a semi trailer and pole-vaulted up through the car's armor and into its battery pack. Panicked investors sold the stock, driving it down more than ten percent. On October 4, Tesla CEO Elon Musk posted a report on the incident, showing why the Model S performed much better than a gas car under similar circumstances, and the stock began to recover, but then experienced another sharp decline along with other high-momentum tech stocks over concerns about the debt ceiling crisis.

This depression may present an interesting buying opportunity. The stock is still down about 11 percent from its high, and the company is set to release its third quarter earnings on November 4th. If my car is any indication, those earnings are shaping up to completely blow away company guidance (pdf) for the third quarter, which suggests that the company will deliver "slightly over 5,000 Model S vehicles in Q3, and remain on plan to deliver 21,000 vehicles worldwide for 2013."

Tesla issues sequential vehicle identification numbers (VINs). The last 5 digits of the VIN indicate its number in the production run. Craig Froehle uses this fact to track VINs that new owners submit at the Tesla Forums. I took delivery of my car on September 25, and my VIN ends in 22,017, indicating that it is the 22,017th Model S produced. Here's a screenshot showing my Model S on the Tesla site, with the VIN partially redacted, but showing the last digits.

If this is correct, Tesla delivered more than 22,000 Model S cars by the end of Q3, outpacing their guidance for the entire year (though this includes 2,650 cars sold in 2012). Now let's look at their production runs in previous quarters:

+2,650 Model S delivered in 2012

+4,750 Model S delivered in Q1 2013

+5,150 Model S delivered in Q2 2013

=12,550 Model S delivered total through Q2 2013

If we assume my Model S was the last one delivered in Q3, that would mean that Tesla's Q3 deliveries were actually 22,017-12,550= 9,467, an enormous surge of production over the Q3 guidance of "slightly over 5,000."

This possibility is supported by the rate of weekly VINs being issued, which the Froehle thread suggests is around 800/week, Tesla's weekly production rate goal for next year, and by the fact that Tesla Model S has started deliveries in Europe, particularly focusing on Norway, where the Model S quickly became the best selling car in the country. Prospective purchasers are paying a $20,000 premium to buy the car from current owners.

If this is accurate, it also will make the Model S far and away the best selling electric car (EV) in America, outselling the Chevy Volt and the Nissan Leaf, at 16,760 and 16,076 cars respectively through Q3 of 2013. That high-status, leader position will make Tesla the gold standard in the EV market, adding to its accolades from Consumer Reports, Motor Trend, the NHSTA and others.

Tesla's Q3 guidance also suggested a goal of 25% gross margin by Q4. If the above indicated production and delivery numbers are accurate, Tesla should easily achieve this goal in Q3.

What does this mean for stock price?

Let's look at the numbers.

9,467 Model S produced in Q3 (estimate based on VIN 22,017), including 616 delivered in Norway

1,000 in transit to Europe (On August 22, Tesla opened an assembly plant in the Netherlands)

8,467 delivered

$94,570 average price (Model S varies from $63,570 to $125,570 fully loaded, higher in Europe)

$800,724,190 automotive sales gross revenue (excluding component sales to other mfrs)

$36,000,000 estimated ZEV credits revenue

$7,000,000 misc/services revenue

$843,724,190 total revenue

25% gross margin

$210,931,048 gross margin

$150,000,000 CAPEX & misc

$60,931,048 net profit

135,000,000 shares outstanding

$.45 earnings per share estimate based on VIN 22,017 delivered Sept 25

Per share:

Tesla earned $.12/share in Q1 and $.20/share in Q2. Wall Street expects $.12/share for Q3 and $.62/share for the entire year. With Q3, if the above projections are close, Tesla will earn $.12+.20+.45=$.77/share through Q3, in excess of the street's full year estimate.

If this is accurate, what does it mean for share price? This is impossible to peg accurately, but for guessing let's use current numbers, which are depressed by about 11% from the stock's peak of $194.50 about a week ago. At about $173 per share as of October 10, Tesla was trading at 279 times current year consensus estimated EPS. Let's assume the $.45 EPS is accurate and will be the same in Q4. That would mean $1.22 EPS for all of 2013, almost twice the street's consensus estimate. Multiplying that times 279 would suggest a February share price of $340 at current multiples. But let's be more conservative, and assume a multiple only related to Q3, which would suggest that shares could peak at about $215 per share in the days following November 4, which is close to some recent analyst price targets, and a 23% increase over the current price.

Shawn Lawrence Otto is an award-winning science writer, filmmaker, novelist, and the co-founder of ScienceDebate.org, the home of the US presidential science debates. His new book is Fool Me Twice: Fighting the Assault on Science in America. He lives in a wind-powered, passive solar, superinsulated geothermal home he designed and built with his own hands. Visit him at www.shawnotto.com and like him on Facebook. Join ScienceDebate.org to get candidates to debate science. Disclosure: he is long Tesla.

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