There’s nothing like first-time profits combined with rumours of a big announcement to light a fire under an emerging company’s stock price – especially if that company is a technology innovator run by a flamboyant Internet entrepreneur.
That’s what happened to shares of electric car company Tesla Motors Inc. Monday, which jumped almost 16 per cent to close at $43.93 on Nasdaq. That is a record high since the company went public at $17 in June, 2010.
One reason for the gain is likely the announcement the company put out Sunday that sales of its Model S sedan have exceeded targets, and “as a result, Tesla is amending its [first quarter] guidance to full profitability, both GAAP and non-GAAP.”
The company had earlier projected that it would sell 4,500 of the Model S vehicles in the quarter, but deliveries actually exceeded 4,750 units, it said in the release.
Still, the profits were not a complete surprise. On the company’s fourth-quarter conference call on Feb. 20, chief executive officer Elon Musk had predicted Tesla would make money in its first quarter of 2013, “unless there is some force majeure event, like a giant earthquake or something, or a big flood or typhoon.”
In the statement on Sunday, Mr. Musk – a co-founder PayPal – confirmed that Tesla had reached that milestone. “There have been many car startups over the past several decades, but profitability is what makes a company real,” he said. “Tesla is here to stay and [will] keep fighting for the electric car revolution.”
In its fourth quarter, Tesla had lost $90-million (U.S.) on sales of about $306-million. The company has not made a quarterly profit since it went public.
Analysts at Morgan Stanley said the Model S deliveries in the first quarter were “well beyond our expectations” of 4,000 units. They also noted that “this is the first positive earnings revision for Tesla since we began covering the company in 2011.”
The analysts also praised as a “smart move” Tesla’s plans to kill off the lowest-end version of its Model S car. Only 4 per cent of buyers chose that version – which retails for $64,500 in Canada and has a relatively small 40-kilowatt-hour battery pack. That number of buyers, Tesla said, is “not enough to justify production of that version.” Customers clearly want a vehicle that “gives them the freedom to travel long distances when needed,” the company said. The two remaining versions of the Model S cost about $75,000 and $86,000 in Canada.
But the sudden enthusiasm for Tesla stock goes beyond its sales and profit figures.
Mr. Musk began teasing the market last week on his Twitter feed, when he said something “really exciting” was coming down the pipe, and he was going to “put his money where his mouth is” in a “major way.” Then in a tweet late Sunday, he said that in his opinion the announcement, set for Tuesday, is “arguably more important” than the news regarding the company’s profitability.
Rumours on the announcement range from a secondary offering of stock to new production locations (the company now builds the cars only at one factory in California), or an expansion of the network of free charging stations Tesla has built along some major highway routes in the United States.
Analyst Khurram Malik at Jacobs Securities Inc. in Toronto said he thinks the announcement could involve a joint venture or alliance with another car maker, or less likely, a new product or a shift in battery technology.
In any event, Mr. Malik said, unless the news is transformative for the company, Tesla shares appear to be “very frothy” at the current elevated price. Because the stock is one of a very few that has gleaned enthusiasm from investors in the beaten-down clean technology sector, “even a small modicum of positive news has a disproportionate impact on the market price,” he said.