Tesla’s Earnings Indicate Some Customer Cancellations

Tesla’s Earnings Indicate Some Customer Cancellations

9:30 p.m. | Updated

People are lining up to reserve Tesla Motors’ electric cars, but many seem to be also withdrawing their reservations.

Tesla reported results for the fourth quarter of 2012 on Wednesday, and said it expected to show a slight profit in the first quarter of this year. But the stock fell 6 percent in after-hours trading. One possible reason is numbers that show that many potential customers were having second thoughts about buying a Model S, Tesla’s sedan.

A substantial number of avid Tesla fans have certainly lined up to be among the first for the Model S. What’s less clear is how much demand exists among car buyers who aren’t the early adopters.

Tesla expects to deliver 20,000 Model S cars this year. Right now, with its production line just getting into gear, it takes time for Tesla to fulfill its orders. As a result, there is a backlog of reservations.

Tesla said 15,000 cars were reserved at the end of last year, below its expectation that it will deliver 20,000 cars this year. The company added 6,000 new reservations in the fourth quarter, which makes the 20,000 target look achievable.

However, Tesla’s numbers suggest that a few thousand reservations were canceled in the fourth quarter. (Update: The Tesla spokeswoman Shanna Hendriks later said the company had 1,500 cancellations in the fourth quarter). Many customers were in line but pulled out when it became time to make a substantial down payment in cash.

Tesla doesn’t just need to hit its targets to show the world there’s real demand for its products. It also matters financially. The company aims to report a gross margin – which measures how much profit is left after subtracting the costs of making a car from revenue – of 25 percent this year. To get from the current gross margin of 8 percent, it has to increase sales by a significant amount.

Tesla officials, however, believe that the company will be able to increase its orders.

“We are not demand-constrained,” Tesla’s chief executive, Elon Musk, said on an investor call on Wednesday. “We are intentionally production-constrained.”

Mr. Musk uttered almost exactly the same phrase in July in an investor conference call.


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