Tesla Motors, an electric car maker backed by the U.S. Department of Energy (DOE), posted a $49.8 million loss in the first quarter of 2014. This loss compared to a profit of $11.2 million in the same period a year earlier despite selling more cars.[i] Last year’s profit was not due to electric car sales, but to sales of California zero-emission-vehicle environmental credits to other auto manufacturers. Those lucrative credits have declined and tight battery supply has made it harder to produce the carmaker’s electric vehicles.
Tesla built 7,535 Model S sedans at its factory in Fremont, California, last quarter, a record for the company bringing in revenues totaling $620.5 million compared to $561.8 million a year earlier. Most of the electric autos were delivered to customers, but over 1,000 were put into inventory for European and China markets. Since Tesla does not have much competition currently in the full electric vehicle market, it needs to provide more models to the marketplace. However, the company has announced that its Model X Sport Utility Vehicle will be delayed until next year. Model X design has been completed and Tesla is starting to work with suppliers to build the tooling needed to assemble the car.
Toyota currently has a 3 percent interest in Tesla Motors which began in 2010 when it invested $50 million in the company.[ii] In 2011, it signed a $100 million joint-development deal for a version of Toyota’s RAV4 crossover sport utility vehicle that would use Tesla’s electric power trains.[iii] But since the electric RAV4 has sold poorly, Toyota has decided to turn to fuel cells as the most viable zero-emissions technology and end its interest in Tesla this year. (Toyota is the world’s biggest manufacturer of gas-electric hybrids.) Toyota’s focus this year will be on its four-door sedan powered by hydrogen fuel cells, which it plans to introduce in California next year and on developing hydrogen refueling stations to support fuel-cell technology.
Tesla’s Expectations for This Year
Tesla is now manufacturing at about 700 vehicles per week, an increase of 15 percent from the rate at the end of the fourth quarter and towards an expected 1,000 per week by the end of the year. Tesla expects to deliver about 7,500 Model S vehicles in the second quarter and about 35,000 for the year. In the second quarter, Model S production should reach 8,500 to 9,000 cars, representing a 13 percent to 19 percent increase over the first quarter. Uncertainty exists because Tesla is still facing a tight battery cell supply but expects it to improve in the third quarter.
Tesla is starting to build right hand drive cars for sale in the United Kingdom, Japan and Hong Kong. As an incentive, the Shanghai government is providing Model S drivers in the city with free license plates, allowing them to avoid the public auction price of $10,000 to $15,000 per plate.
Musk said Tesla is still working on its “Gigafactory” project – a plan to build a giant battery cell factory in the United States that is expected to begin operation in 2017.
Tesla Earns Environmental Credits worth Millions
Last year, Tesla Motors paid back its $465 million loan to the Department of Energy, nine years before its full loan was due.[iv] Tesla was awarded the loan, requiring matching private capital obtained through public offerings, in 2010 as part of the Advanced Technology Vehicle Manufacturing program. This program was signed into law by President George W. Bush in 2008, but the awards were made by the Obama administration. While other electric vehicle and battery companies under this program went bankrupt, Tesla was able to survive. One major reason is that Tesla was able to amass environmental credits from California valued at $250 million for 2013.
Tesla has been able to garner millions from California’s zero emission vehicle standard. California’s Air Resources Board has mandated that zero emission vehicles (cars with zero emissions of tailpipe pollutants) comprise 15 percent of new-car sales by 2025. Those vehicles comprise less than 1 percent of new car sales in California today. Companies that exceed California’s milestones towards its zero emission vehicle goal receive credits that are worth cash when sold to auto manufacturers that do not meet the state’s requirements. Essentially, California has mandated the sale of electric cars, and enforces the mandate by requiring that companies that do not sell enough electric cars pay into a fund that subsidizes those companies that do.
During the first quarter of 2013, Tesla received about $68 million (12 percent of revenue) from the sale of zero vehicle emission credits. Note that without the sale of these credits, the company would have lost over $50 million during the first quarter of 2013.[v] According to a Wall Street analyst, Tesla earned as much as $250 million in 2013 on their sale. Translated into dollars per vehicle, Tesla made as much as $35,000 extra on each sale of its luxury Model S electric sports sedan through state environmental credits that it sold to other auto manufacturers that need to buy credits to satisfy California regulations. Adding in the Federal tax credit of $7,500 per vehicle and a state rebate of $2,500 per vehicle, the state and federal incentives totaled as much as $45,000 per vehicle that Tesla sold for as much as $100,000, depending on the model and options.[vi] Essentially, regular taxpayers who buy typical cars, trucks and minivans are heavily subsidizing an additional car for a clientele whose average income is just under $300,000 per year.[vii]
Tesla Motors, the ‘cadillac’ of full electric vehicles, are being purchased by extremely wealthy individuals aided by lucrative subsidies and incentives from federal and state taxpayers and those who choose to buy more affordable vehicles. In particular, the credits from the California zero-emission vehicle program have enabled Tesla to reap huge revenues and to repay its DOE loan. But, the company still has a long way to go to make it in today’s vehicle markets where few people can afford Teslas.
[i] LA Times, Tesla Motors posts 1st quarter loss; Model X delayed until next year, May 7, 2014, http://www.latimes.com/business/autos/la-fi-hy-tesla-first-quarter-loss-20140507-story.html
[ii] NY Times, Seeing Future in Fuel Cells, Toyota Ends Tesla Deal, May 12, 2014, http://www.nytimes.com/2014/05/13/business/energy-environment/seeing-future-in-fuel-cells-toyota-ends-tesla-deal.html?emc=edit_th_20140513&nl=todaysheadlines&nlid=63692790
[iii] Bloomberg, Tesla Wins $100 Million Supply Deal With Toyota for RAV4 EV, July 20, 2011, http://www.bloomberg.com/news/2011-07-20/tesla-wins-100-million-toyota-supply-deal.html
[iv] Tesla Repays Department of Energy Loan Nine Years Early, May 22, 2013,http://www.teslamotors.com/about/press/releases/tesla-repays-department-energy-loan-nine-years-early
[v] Wall Street Journal, The Other Government Motors, May 23, 2013,http://online.wsj.com/article/SB10001424127887324659404578499460139237952.html?mod=WSJ_Opinion_AboveLEFTTop
[vi] LA Times, Tesla drives California’s environmental credits to the bank, May 5, 2013, http://articles.latimes.com/2013/may/05/business/la-fi-electric-cars-20130506
[vii] Money and power: Proof that Tesla buyers are cut from a different cloth, August 29, 2013, http://ecomento.com/2013/08/29/money-and-power-proof-that-tesla-buyers-are-cut-from-a-different-cloth/