On Jul 2, 2014, we issued an updated research report on Tesla Motors, Inc. (TSLA). The electric carmaker remains a loss-making company despite increasing sales. In the first quarter of 2014, it reported adjusted loss (including stock-based compensation expenses) of 14 cents per share, deteriorating from break-even results recorded in the year-ago quarter. This resulted in a 60% negative earnings surprise in the quarter.
Notably, the company is facing supply chain problems, which are restricting its ability to increase production. Other factors affecting the company’s results are high research and development (R&D) and selling, general and administrative (SG&A) expenses, as it is investing significantly to develop the Model X and expand its supercharger network. Tesla is also facing opposition to its direct-selling model in some U.S. states, which might lower sales volumes.
Tesla’s limited market share, small operating scale compared to other automakers, focus on a niche product segment and uncertainty related to demand in the long term also resulted in a “B-” credit rating from Standard & Poor’s Ratings Services (S&P) in May 2014. The rating falls in the junk category.
Nevertheless, Tesla has acquired substantial market share in the electric car market. Moreover, to boost sales, the automaker is actively undertaking international expansion, particularly in Europe and China. To deal with the shortage of lithium-ion batteries, Tesla is building a Gigafactory to produce the batteries in collaboration with various partners.
The Zacks Consensus Estimate for Tesla’s 2014 earnings is currently 8 cents per share, which translates into a negative year-over-year growth rate of 52.9%. The company carries a Zacks Rank #5 (Strong Sell).
Key Picks from the Sector
Other stocks worth considering in the same industry include Fox Factory Holding Corp (FOXF), Standard Motor Products Inc. (SMP) and Douglas Dynamics, Inc. (PLOW). Fox Factory sports a Zacks Rank #1 (Strong Buy), while Standard Motors and Douglas Dynamics have a Zacks Rank #2 (Buy).
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