Tesla cuts revenue forecast due to slow Model S rollout
New car is 4-5 weeks behind prior delivery goal for year end
DETROIT (Reuters) -- Electric car maker Tesla Motors Inc. today cut its forecast for 2012 revenue because of a slower-than-expected rollout of its Model S sedan, sending its shares down almost 10 percent for the day.
The company, which last night launched a network of solar-powered fast-charging stations for its cars, said in a regulatory filing it now expects full-year revenue in the range of $400 million to $440 million, down from its prior outlook of $560 million to $600 million.
"We have methodically increased our Model S production at a rate slower than we had earlier anticipated," the company said in a U.S. Securities and Exchange Commission filing.
"Certain suppliers have experienced delays in meeting our demand and we continue to focus on supplier capabilities and constraints," the company added.
Following the filing, Tesla's shares plunged 9.8 percent to close the day at $27.66 on Nasdaq.
Tesla, backed initially by a group of Silicon Valley venture capital firms, has said it expected the Model S, with a base price of $57,400, to provide 90 percent of the company's revenue this year.
The company plans to roll out the Model X crossover utility vehicle in 2014 and a smaller sedan code-named Gen III in 2015.
In a research note to clients last week, Morgan Stanley analyst Adam Jonas called the sluggish ramp-up of the Model S "the worst-kept secret in the industry." He called the fears of the slow rollout "overdone" and upgraded his rating on the stock to "overweight."
"We think Tesla has the right idea: Get it right the first time," Jonas said. "Efficacy of the product is what matters most."
Tesla does not have the luxury of a larger automaker, which can get away with a launch that may require a recall, Jonas said. He acknowledged, however, that investing in Tesla's stock still involved "a leap of faith."
Tesla said today it expects third-quarter revenue of $44 million to $46 million, reflecting the lower deliveries of cars.
Working with suppliers
To increase production of the Model S, Tesla said it is working with suppliers for faster parts deliveries, adding automation and second shifts in some manufacturing areas and increasing manufacturing staff training.
It anticipates delivery of between 200 and 225 Model S cars to customers in the third quarter, and between 2,500 and 3,000 in the fourth quarter, putting it four to five weeks behind its previously announced delivery goals as of the end of 2012.
Jonas last week forecast Tesla to achieve Model S production of little more than half its 5,000 target.
As of Sept. 23, Model S reservations, excluding those already delivered, were about 13,000, up from about 11,500 at the end of June, Tesla said today.
While the company expects reservations to increase, it said cancellations rose in the third quarter as it asked the first several thousand customers on the reservations list to configure their cars for delivery or risk losing their production slot.
The company sees the gross profit margin in the third quarter in the range of negative 15 percent to negative 18 percent, hurt by the limited number of Model S sedans. It also cited manufacturing inefficiencies, higher costs for initial parts and the delay of development services revenue from German automaker Daimler AG.
Margins to improve
Tesla expects gross margin to "improve substantially and turn positive" in the fourth quarter as it ramps up Model S volumes and cuts costs.
It also said it expects the finalize its agreement on development milestones and related payments with Daimler in the fourth quarter.
Tesla said research and development spending for the third quarter will be about 20 percent lower than the second quarter, while selling, general and administrative expenses will increase modestly in the third quarter over the prior three-month period.
It sees 2012 capital spending in the range of $220 million to $240 million.
For 2013, Tesla said it plans to exceed its target for 20,000 Model S deliveries by reaching its targeted weekly production rate of 400 cars before the end of the year, as well as achieve a gross margin of 25 percent. It also expects to be close to breakeven on free cash flow at the end of 2012.
The California-based company said it has fully drawn down its $465 million U.S. Department of Energy loan facility. After drawing down $71 million in the second quarter, Tesla said in July that it would draw down the remaining $33 million in the next few months.
Tesla said it may have to seek an amendment to the DOE loan if it fails to raise enough money from investors.
In a separate filing, Telsa said it plans to sell 4.34 million additional shares and expects to receive net proceeds of $128.3 million, or $147.6 million if the underwriter, Goldman Sachs Group Inc., exercises its option to purchase additional shares in full.
"We currently anticipate that without raising capital in addition to this offering, we would need to seek an amendment from the DOE to modify the total liabilities to stockholder equity covenant for the quarter ending March 31, 2014, and the two subsequent quarters," the company said in the filing.
Tesla also has been told by the DOE to devise a speedier repayment schedule after getting a waiver on existing terms.
The company said in the U.S. regulatory filing that it's been given until Oct. 31 to submit a plan for "early repayment" of loan principal.
Tesla said it received a waiver from a requirement in the previous loan agreement to maintain a specified current ratio of assets to liabilities, which measures a company's ability to repay its debts in the next 12 months.
"The department worked with Tesla on a minor technical change to the loan agreement that includes the company submitting a plan to accelerate repayment of the loan," Damien LaVera, an Energy Department spokesman, said in an e-mail to Bloomberg today. "Tesla has made loan payments on time and in full."
Tesla will meet the deadline for the revised payment plan and will be able to pay back loans in less than 10 years if it becomes profitable ahead of schedule, said Deepak Ahuja, the company's chief financial officer.
"They would like to explore possibilities that would result in a repayment earlier than 10 years, when we are in a financially sound situation and have access to multiple capital- markets alternatives," Ahuja said in a phone interview.
"It's not time-bound," he said. "It's more of metrics- based approach. That's what makes sense for the DOE and us. DOE obviously will not do anything to force us to pay while in the process injuring us."
Asked if the DOE's request indicated concern, Ahuja said, "No, the opposite. If you think about it, they have allowed us to draw down the entire loan as recently as four weeks ago. They are willing to work with us on covenants. They recognize the original covenant was done four years ago and the world has changed since then."
Bloomberg contributed to this report.
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.