Updated from 9:01 a.m. EST to provide analyst comments in the seventh paragraph.
NEW YORK (TheStreet) -- The thesis on Tesla Motors (TSLA) changed again last night. Now, the question for investors isn't whether the electric-car manufacturer can be profitable, it's just how profitable it can be.
Tesla, led by CEO Elon Musk, earned 5 cents a share during its second quarter, generating $405 million in sales. The Model S continues to blow past the wildest expectations of industry observers as global deliveries surged in the three-month period to 5,150 units for the quarter.
In contrast, analysts were expecting a loss of 17 cents a share on $383.4 million in revenue for the second quarter.Not only is the company now profitable (albeit on a non-GAAP basis), gross margins continued to tick up. For the quarter, gross margins were 22%, 13% when you exclude Zero Emmissions Vehicles (ZEV) credits. The company has stated that its goal is 25% and CEO Elon Musk emphasized that he's confident about getting there. "Obviously, on average between Q3 and Q4, we need to do six points per quarter, so we need to make as quite as big an improvement as we did Q1, Q2, but obviously, so significant hill to climb and huge amount of work, but we feel pretty confident about the 25% number," Musk said on the conference call. "And, it's important to note that we have visibility into these numbers more than ahead of time." Not only is Tesla profitable for the second time in its history, as the Model S continues to be supply constrained, Tesla is taking market share from all manufacturers not just premium sedans. Both Musk and CFO Deepak Ahuja noted Tesla's customers are coming from Toyota Motors' (TM) Prius, the Mercedes E-Class, the Toyota Highlander, Volkswagen Jetta, Honda Motors' (HMC) Civic and Odyssey and the BMW 5 Series, to name a few.
My overall thoughts on TSLA: Company is beating up everyone, not just high-end, demand is exceptional, & they can't make enough.— Chris Ciaccia (@Chris_Ciaccia) August 7, 2013It's important to note that Tesla is not just taking share from premium sedans. People who never thought they would be purchasing a $70,000+ sedan are moving towards the company's products. This affects all automakers, including American behemoths such as Ford Motors (F) and General Motors Motors (GM). In a research note, Jefferies analyst Elaine Kwei, who raised her target price to $160 from $130, noted that investors "[c]ouldn't have asked for a better report" as the company beat on every metric. "TSLA posted a 2Q beat on all key metrics including deliveries, margins, and earnings," Kwei wrote in the report. "TSLA delivered 5,150 Model S vehicles in North America, with a gross margin of 22%, and was profitable on a non-GAAP basis. TSLA reiterated 2013 shipment and margin guidance but hinted at expansion past 25%."
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