Silicon Valley electronic car darling Tesla Motors banked a profit of $1 million in July, based on $20 million in revenues brought in through delivery of 109 of its $109,000 sports cars.
I had the rare chance to drive a Tesla and can say that if I had a spare six-figure inheritance in my possession, I might well have coughed up for one of these beauties. The earnings this quarter could put to rest critics' claims that the company would never break out of the red.
The Tesla Roadster is the only electric vehicle for sale that can travel more than 200 miles per charge, a key selling point to American consumers who don't like the idea of stepping out on dinky battery coverage. The Tesla is also greased lightning, with whiplash--inducing acceleration 0-to-60mph in 4 seconds. That bests almost all other high-end production sports cars by a comfortable margin.
The San Carlos, California-based electric car company says its sales figures are simply a precursor of more to come -- particularly in Europe. Chief executive Elon Musk congratulated his troops on finding more cost-effective ways to build the cars. Still, the fact that the company entered the black during the same month it opened swanky showrooms in Seattle and New York is pretty impressive.
Of course, it was helped in no small measure by the $465 million in federal loans it received from the Department of Energy in June to continue development of its Model S family sedan. Even though Tesla says the $1 million profit (and the $20 million in revenue) was not influenced by the loan, the government sponsorship probably had something to do with boosting consumer confidence -- at the very least.
Musk forecasted profitability for the company back in June when news also broke that he and Tesla were both being sued by its founder, Martin Eberhard, for slander, delivery of damaged goods and more of the like. Not only was Musk apparently right in his prediction, but Eberhard has since been smacked with a ruling that he is not technically one of the company's two founders as he has claimed. Instead, the San Mateo County Superior Court judge ruled that Tesla was the brainchild of a team of people -- a team that incidentally includes Musk. Still, Eberhard is moving ahead with the lawsuit, seeking $100,000 in severance pay in addition to other damages.
The announcement of profitability is almost a full 180-degree shift for a company that -- as recently as November 2008 -- was plagued by rumors that it only had $9 million left in the bank and would have a tough road to hoe after the downturn. The company soon silenced critics with a $40 million round of capital that kept the ball rolling. And now it's seemingly back on top again, partnering with Daimler and sitting at the same table as Nissan and Ford when it comes to government support.
The surprise announcement came out on a Friday, which seems odd. Companies that want to bury their misdeeds generally do so on the last workday of the week. But company founder and CEO Elon Musk, who previously founded online payment service PayPal, has been steering clear of media after a rash of critical coverage cast him in a darker light. The company also was roundly criticized after it received $465 million in federal funding to help develop more efficient, accessible vehicles, namely Tesla's $49,000 sedan. Naysayers compared Uncle Sam's low-interest Tesla loan to underwriting Lamborghini or Maserati, while more prosaic e-car efforts were left to swing in the breeze.
For its part, Tesla said the government gift would help the company scale its production and become profitable more quickly with it's Model S sedan, a car that could conceivable drop below the $40,000 price range that has been the entry level for high-end hybrid's to date. Tesla has some big believers, including Daimler-Benz, which holds a 10 percent stake in the company. Equally important, Tesla will also probably benefit from President Obama's $2.4 billion grant program that aims to help makers of electric car components boost their production capabilities and drop the cost per unit of everything from drive trains to batteries.
Whether Tesla's profitability can truly scale, however, remains an open question. It's far easier to turn a profit on small sales of extremely high-end cars than to run far-flung manufacturing operations, maintain a massive supply chain, service vehicles, and optimize pricing. And the electric car market on the lower end, where Tesla hopes to gain mass purchase, is sure to become more competitive really quickly with Nissan's Leaf, Chevy's Volt, and other e-cars expected to hit the markets in force within the next three years, not too far behind Tesla's S model.
Before finally getting to profitability, Tesla had blown through wads of cash as it struggled with production problems on its first-generation Model R sportster. The company raised the ire of many paying customers after it retroactively raised prices on customers who had pre-paid for their cars. The move sparked acrimonious "Town Hall" meetings between Tesla and its customers, but the company remained defiant. Musk and his troops might need to polish their customer rapport skills as competition drives onto the horizon.
Alex Salkever is a senior writer at AOL Daily Finance. He covers cleantech and tech.