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Tesla sees output, profit margin rising; shares surge

A customer drives a Model S out of Tesla's factory in Fremont, California, June 22, 2012. REUTERS/Noah Berger
A customer drives a Model S out of Tesla's factory in Fremont, California, June 22, 2012. REUTERS/Noah Berger

By Bernie Woodall

(Reuters) - Electric car maker Tesla Motors Inc said on Monday it was on track to reach an annual production rate of 20,000 for its Model S sedan in December, sending its shares up nearly 8 percent.

The company also said that by the end of the current quarter it would be halfway to its goal of a 25 percent gross margin. The positive outlook overshadowed Tesla's report of a wider third-quarter loss.

Within four to five weeks, the company will be making 400 Model S cars per week, a rate of 20,000 per year, Chief Executive Elon Musk said on a conference call with analysts.

Musk said that in the third quarter Tesla passed through a risky period as it ramped up to mass produce a car for the first time in its history.

"Tesla is really past the point of high risk," he said. "Several months ago, I said that the coming several months would really be the test for Tesla and the classic phrase of going through the valley of death. I feel as though we are through that valley at this point."

Morgan Stanley analyst Adam Jonas said that "given the ability of a new auto company to consume cash, better visibility on the pace of production ramp is critical." He said Tesla was ramping up production faster than Morgan Stanley had expected.

Tesla shares were up $2.27 to $31.19 in afternoon trading on Nasdaq.

The company ended the third quarter with $109 million in cash. After the quarter ended, it raised $222 million, bringing its total available cash to $330 million.

Weekly Model S production was 100 cars at the end of the quarter and is now up to 200, Tesla said. That would be an increase from only five per week in early July, it said.

Production of the Model S, Tesla's first mass-produced car, began on June 22.

By the end of the first quarter of 2013, Tesla will be making the Model S with three different battery sizes.

MODEL S VERSIONS

The basic Model S, which will go into production in the first quarter, will have a base price of $57,400 before a $7,500 federal tax credit for plug-in vehicles. Tesla says the model will have a 40 kilowatt-hour lithium-ion battery and will be able to travel 160 miles on a full charge, but that has not yet been tested by the U.S. Environmental Protection Agency.

The Model S version that Tesla expects will be the biggest seller is one with a 60 kilowatt-hour battery the company says will travel 230 miles on a full charge, also not yet tested by the EPA. It will cost $66,500 before tax credits and options. Production of that model is to begin late in the fourth quarter.

Tesla delivered 253 Model S sedans in the third quarter - "Signature" versions with 85 kilowatt-hour lithium ion batteries - and expects to deliver 2,500 to 3,000 in the fourth quarter. All Model S sedans delivered this year will be "Signature" versions that the company says can travel 300 miles on a full charge. Using a new varied-driving test for plug-in vehicles, the EPA said its range is 265 miles on a full charge. This version sells at a base price of $95,400, before the tax credit for plug-in vehicles.

Tesla would not say what the average selling price is for its cars, but Musk reported many orders for Signature "Performance" versions that start at $105,400 before tax credits.

Tesla's first car, the Roadster, was a limited-production sports car that cost $110,000 to $140,000 or more, before the federal tax credit. Its production run - 2,500 vehicles - has ended in North America and Asia and only a few more will be sold in Europe, Tesla said. The first Roadster was made in March 2008.

GROSS MARGIN TARGET

Musk said he has "very high confidence" that full production of the Model S is near, and that Tesla will exceed its goal of a 25 percent gross margin.

Tesla said it would be halfway to that margin goal by the end of the fourth quarter. Gross margin for the third quarter was negative 17 percent due to costs associated with launching Model S sales and spreading the expense of running the company's factory in Fremont, California, over the small number of cars produced by end-September.

Tesla said its third-quarter loss widened to $110.8 million, or $1.05 per share, from $65.1 million, or 63 cents per share, a year earlier.

Excluding special items, mainly stock-based compensation expenses, Tesla reported a loss of 92 cents per share. On that basis, analysts' average forecast was a loss of 90 cents, according to Thomson Reuters I/B/E/S.

Revenue came to $50 million, up 16 percent from a year earlier and up 88 percent from the previous quarter. Analysts had expected $48.3 million.

Palo Alto, California-based Tesla maintained its 2012 revenue outlook of between $400 million and $440 million. In late September, the company cut its previous forecast of $560 million to $600 million due to a slower-than-anticipated rollout of the Model S. (Reporting by Bernie Woodall; Editing by Lisa Von Ahn and John Wallace)

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