Though I think we’re all rooting for Tesla, it can’t be ignored that two of the company’s most notable achievements—reporting its first ever quarterly profit and repaying a federal loan—were aided substantially by two factors outside its core business of manufacturing and selling cars: trading credits under California’s Zero Emission Vehicle program and raising roughly $1 billion by selling additional stock and securities.
Tesla reported on May 8th its first quarterly profit of $11 million. That figure is a blip on the radar compared to many established automakers, but was hugely significant to Tesla investors. In the following weeks, Tesla’s stock (TSLA) rose to more than $100, up 115% over the past month. While Tesla delivered an impressive 4,900 units of the renowned Model S, the company pulled in $68 million in revenue from selling credits to other manufacturers through California’s Zero Emission Vehicle credit market. That number amounts to 12 percent of Tesla’s first-quarter revenue, and contributed 15 percent to the reported 17 percent gross margin. Tesla was at least up front about this impact in the earnings release, saying it would not factor in credit sales to reach its goal of hitting 25 percent gross margin and does not consider them central to its business.
More recently, Tesla was in the news for repaying, including interest, a $465 million Department of Energy loan nearly a decade in advance. The loan was paid off with the approximately $1 billion the company raised from issuing stock and debt-like securities. Tesla CEO and co-founder Elon Musk said he would purchase $100 million of the issued stock himself. Musk mentioned that paying off the loan should boost its image, but the elimination of a government contract could also free up additional funding opportunities. As a side note, Tesla says the loan payment makes it the only American car company to have fully repaid the government.
Taxpayers are off the hook, but Tesla faces an uncertain future characterized by catch-22s and irony. The company’s biggest obstacle is finding buyers outside of the innovator and early-adopter segments of consumers. But even if Tesla is successful, it will face rapid competition from deep-pocketed automakers. Tesla’s success will also be negatively impacted by cheap fuel prices and more efficient traditional and hybrid vehicles, factors that would help the economy and the environment (respectively) but reduce electric vehicles’ attractiveness.
Image by Tesla
