25 Percent Gross Margin by Q4 a Possibility at Tesla

25 Percent Gross Margin by Q4 a Possibility at TeslaPalo Alto – Increasingly analysts believe that Tesla Motors Inc. (NASDAQ:TSLA) CEO can achieve gross margins of 25 percent or more might be possible.  The industry average was closer to 11 percent last year while Porsche Automobil Holding SE (ETR:PAH3) (FRA:PAH3) enjoys more than 40 percent.  Reasons for the optimism include increased expectations that Tesla can produce 40,000 units from its current assembly lines compared to 25,000 (~) 30,000 with the same configuration.  According to a report from istockanalyst, other factors regulatory credits, price hikes, and yen weakness.  A weaker Yen would significantly boost margins as almost $ 20,000 worth of parts used in the Model S are imported from Japan.

In addition, the achievement of cumulative volume targets on supplied components – a pricing mechanism that helps suppliers recoup upfront costs while giving Tesla a price break when aggregate sales levels were achieved.  The expanded volume might also create interest from large auto parts suppliers who previously refused to supply Tesla.

According to Deutsche Bank analyst Dan Galves, investors will be pleased to see gross margin above 20 percent.  However, regulatory credits could push gross margin over 25 percent as soon as the fourth quarter.  In a recently published report, analysts Craig Irwin and Min Xu, also expect Tesla to achieve 25 percent gross margin, excluding credits, in the fourth quarter margin backed a reduction in production cost per vehicle among other factors.  In 2011, Toyota Motor Company (NYSE: TM) investment $ 50 million into electric carmaker and in May, Tesla announced its first quarterly profit in their ten-year history.

Meanwhile, competition in the electric auto sector is increasing.  On July 29, BMW (Bayerische Motoren Werke Aktiengesellschaft, FTSE:BMW.DE) finally unveiled their i3 electric vehicle, which will be priced at just $ 41,000 compared to $ 62,000 for the Model S.  On Tuesday, Citron Research tweeted on Monday that tweeted that it was shorting Tesla in favor of the i3.

However, up to this point, Tesla has been able to overcome most challenges.  Earlier this year, Tesla CEO, Elon Musk, was involved in a public feud with New York Times reporter John Broder over the accuracy of a review he published that claimed the battery range on the Model S was much less than advertised.  Musk took offence to the article, claiming that Broder did not drive the car as instructed and this led to the battery running out.  Tesla shares end Wednesday up almost 2 percent on light trading.

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About the author

Audrey is a senior editor for the business and finance sections.