Tesla shares charged by news of first-ever profit

Shares in California-based electric vehicle maker Tesla soared on Wednesday after the company delivered its first ever quarterly profit and its first three-month period of positive cash flow from operations, on the back of better than expected sales of its luxury Model S sedans.

The EV maker headed up by billionaire Elon Musk announced on Wedndesday that its first-quarter net income totaled $US11.2 million, up from from a loss of $89.9 million a year earlier. Revenue for the first quarter was $US562 million, topping the consensus estimate of $500 million. Gross margin was 17 per cent, while cash flow from operations was $64 million.

The announcement of this major milestone soon gave rise to another, with Tesla stock hitting $72.99 a share at one point in after-hours trading – an almost 30 per cent rise and more than four times the $17 of its IPO share price when Tesla first started trading back in the summer of 2010. Shares increased 65 percent this year as of the close.

As MarketWatch points out, this would have been a painful moment for “the shorts,” those investors who who have been betting against Tesla stock, in the belief its shares will fall after a spectacular run this year. Short interest in Tesla remains among the highest in the Nasdaq with, as of last month, 42 per cent of shares available for trading sold short, compared to General Motors with 12 per cent, and Ford with 1.7 percent.

But as GigaOm’s Katie Fehrenbacher notes, Tesla and Musk obviously have ambitions far higher than this current marketcap and stock price, considering Musk’s payout package that allocates shares when Tesla’s marketcap adds $4 billion up until it reaches $43.2 billion, along with accompanying operating milestones.

It’s a view more in line with the portfolio managers at Longboard Asset Management, who last week predicted Tesla shares would rally 500 per cent in five years, and who compared the electric car maker with the likes of Apple and Google.

And while this might be a bit on the hyperbolic side, Tesla’s turn to profit has caught the market’s attention. “I’d be lying if I said it wasn’t somewhat surprising to see they’ve been able to turn a profit so quickly” on the Model S, Alec Gutierrez, an industry analyst for Kelley Blue Book, said in a phone interview with Bloomberg. “It has the right stuff to be a strong player in the industry.”

Indeed, Tesla ended the quarter as the top seller of rechargeable autos in North America. Its Model S deliveries exceeded the 4,421 sales of GM’s Chevy Volt plug-in hybrid and 3,695 deliveries of Nissan’s Leaf. The company said on Wednesday that it expects annual global demand for its vehicles to exceed 30,000 units a year.

“We exceeded our own target for deliveries,” Musk and chief financial officer Deepak Ahuja said in a company statement. “2013 is off to a strong start.”

Skeptics, meanwhile, would argue that Tesla still needs to prove it can post a profit quarter after quarter. And they might question whether the relatively new Model S, with just over 6,000 sold so far, can continue to grow sales at a steady clip over the next several years.

It’s also worth noting that sales of so-called zero-emission vehicle credits to automakers Tesla didn’t name generated $68 million, or 12 percent of revenue, in the quarter. Revenue from such sales will drop in the second and third quarters and there may be none in the fourth quarter, Musk said on a conference call.