Tesla’s big moment – June 22nd – is coming up quickly. The company is gearing up for launch of the Model S, and the first model has already been delivered to a company board member. Throughout the three years that Tesla has developing Model S, it has been quite an experience watching the birth of a new American car company.
Their Initial Public Offering was the first for a new American automobile company since Ford in 1958. We’ve said this before, but Model S is make-or-break from Tesla. From it’s beginning in 2003, Tesla has never had to generate lots of positive cash flow. Private equity has sustained the company and its low amount of overhead and cash burn.
Once the Model S goes on sale, there is no excuses. At this level of revenue (between $560 and $600 million) a per vehicle loss would begin to pile up very quickly. Luckily for Tesla, they appear to have their business model sorted out. Chief Executive Officer Elon Musk has given some new projections at the company’s annual business meeting in Mountain View, California. Automotive News reports that the company is expecting to deliver 5,000 units of the Model S this year (as many as it can build) with 20,000 following in 2013. These are global figures. Most impressive though is his projected figure for positive cash flow; just 8,000 units a year. Musk has predicted the company will have a gross profit margin of 25 percent, with an operating margin in the low to mid teen range. That would place Tesla at the high (highest, we think….) bracket of profitability in the auto industry, making for some impressive profits. Of course, this is all speculation at this point. Musk has done the near-impossible so far though, so we’re rooting to see this succeed.
It’s no secret that leasing is a big driver of luxury car sales. So far, all of Tesla’s thousands of orders have been for traditional loan purchases. The company hasn’t had to come up with creative financing deals with the Model S, or previously for the Roadster. To maintain sales beyond the initial adopters though, Musk plans to begin leasing programs next year. With the Model S’ range, it becomes a whole lot more usable as a vehicle than cars like the Nissan LEAF, Honda Fit EV and Chevrolet Spark EV. Hopefully the market agrees. The sales garnered so far have been very impressive.