As Tesla Motors Inc.’s (NASDAQ: TSLA) earnings announcement approaches, among the most significant worries is whether it can sell more than 60,000 cars this year, a number slightly above expectations. The market has voted no over the past month, as the car company’s stock has plunged 14%. Looking longer term, Tesla has to sell at least 500,000 cars in five years for investors to be satisfied.
Tesla has based its forecasts on sales of the new Model X sport utility vehicle (SUV) and the eventual launch of the affordable Tesla III. Tesla Model S sales have been low by mass manufacturer standards at about 13,000 a quarter. Tesla management points out that its number is more than BMW sells in some states, during some months, which falls short of a convincing argument.
With revenue of about $1.5 billion a quarter, Tesla’s net income swings from losses to what may be a profit in the fourth quarter. Much of that has to do with production. Tesla cannot lose money on cars it does not produce and sell. That is the ironic part of its profit and loss statement (P&L).
Tesla CEO Elon Musk forecast annual sales to be 500,000 by 2020. Many consider the number unattainable, if the company does not substantially improve its factory capacity. Musk says he can. The markets have expressed skepticism. Battery availability drives some of his formula for future sales. At this point, battery supply may be a rate-limiting step.
Much of the criticism about Tesla has nothing to do with batteries at all. Forecasts of Tesla’s success assume modest or little competition. Expectations about a BMW competing vehicle have undermined the promise of future Tesla sales. And nearly every large manufacturer has plans to chase it.
Even with a slide in its shares, Tesla has a market cap of $28 billion. The anticipated sales of 500,000 cars defends that, as investors see it. With the goal based on sales five years out, it barely serves as a defense.