Shares of Tesla Motors, Inc. (TSLA - Analyst Report) fell 17.2% to $146.35 on Nov 6, before recovering marginally to close at $151.16. This is the largest one-day fall since Jan 2012 for this market-favorite stock, which surged 422% from $33.87 as of Dec 31, 2012 to $176.81 as of Nov 5, 2013.
The slump in Tesla’s stock resulted from disappointing third quarter results, arising from production shortfall. The company is facing a shortage of lithium-ion battery cells, which is limiting its production capacity. Consequently, Tesla is unable to meet the rising demand for its Model S.
Although the company has increased its production capacity to 550 cars per week and has delivered more than 5,500 cars during the third quarter, which is a record for the carmaker, it is still failing to meet demand. Consequently, the Palo Alto-based automaker had to stop deliveries in North America to meet the demand in Europe.
Tesla is working on overcoming this constraint. The electric carmaker recently extended its supplier agreement with Panasonic, whereby the latter will supply around 2 billion automotive grade lithium-ion battery cells to Tesla over the next four years. This is enough to produce around 300,000 cars. The company is also considering opening a cell and battery giga factory to boost cell production.
However, demand is also expected to ramp up now that Tesla has started taking reservations for Model S in China. The automaker will start delivering the car in China from the first quarter of 2014.
Another factor affecting Tesla’s results is high research and development (R&D) and selling, general and administrative (SG&A) expenses. The company is investing significantly for developing Model X and the right-hand version of Model S, apart from expanding its Supercharger network.
Tesla believes that R&D expenses will increase 25% sequentially in the fourth quarter of 2013 due to increased efforts on the development of Model X and Model S enhancements. SG&A expenses are also projected to rise 20% due to increase in retail locations, service centers and Supercharger facilities.
Nevertheless, Tesla logged a narrower adjusted loss (including stock-based compensation expense) of 4 cents per share in the third quarter of 2013, compared with $1.04 per share of loss recorded in the year-ago quarter. Results compared unfavorably with the Zacks Consensus Estimate of break-even results.
Third-quarter 2013 earnings exclude non-cash interest expense related to convertible notes of 3 cents per share and deferred gross profit for Model S due to lease accounting of 21 cents. On the other hand, 2012 earnings exclude unfavorable change in fair value of warrant liability of 1 penny per share. Including these items, the company reported net loss of $38.5 million or 28 cents per share compared with $110.8 million or $1.05 in the third quarter of 2012.
Revenues, excluding Model S revenues deferred due to lease accounting, jumped to $602.6 million in the quarter from $50.1 million a year ago, beating the Zacks Consensus Estimate of $553 million. Year-over-year improvement in revenues was driven by higher vehicle deliveries and increase in average selling price of the vehicles together with a better mix of cars.
Tesla currently retains a Zacks Rank #3 (Hold). Other major automobile stocks worth considering are Fox Factory Holding Corp. (FOXF - Snapshot Report), General Motors Company (GM - Analyst Report) and Ford Motor Co. (F - Analyst Report). While Ford is a Zacks Rank #1 (Strong Buy) stock, the other two carry a Zacks Rank #2 (Buy).