Google is a natural partner in this area, with well-documented success in its own fleet of driverless hybrids from Toyota. Most of Tesla's discussions have been centered on Lidar, which is Google's Light Detection and Ranging tracking system.

But CEO Elon Musk has said that costs for these systems might be too high, and this could lead Tesla to develop an autopilot system of its own. Musk has explained the company is more in favor of a camera-based system (rather than one that uses Lidar). At the same time, he has not ruled out the possibility that a partnership with Google will be seen at a later date.

It should also be noted the U.S. government has stated that fully autonomous vehicles will not become a significant cross-section of the market for another decade, so investors expecting near-term solutions in this area are jumping the gun. Statements from Google, however, suggest the technology for fully autonomous vehicles will be available in the next five years.

A Positive Outlook

While Tesla failed to meet its 25% projected pace of improvement in gross margins, first-quarter performance in this area did manage to come in at 17%. This is a strong increase from the 8% seen the previous quarter.

But the company still holds more aggressive expectations, reaffirming its guidance and suggesting the 25% figure in gross margins will be achieved in the fourth quarter of this year. Tesla's full-year sales guidance for the Model S was raised to 21,000, but profit expectations for the next quarter were revised lower on the additional costs associated with new product launches planned for Europe. Additional expenses will be incurred when development costs for Tesla's next car model are factored into the wider picture.

In all, the latest results from Tesla are encouraging. The company is a clear example of world-class engineering, and its balance sheet is starting to reflect this. Future earnings will be driven by a number of different factors. Demand for these vehicles is on the rise, both domestically and abroad.

Tesla has proven its talent when looking to execute big ideas, and will no doubt have a major influence on the next generation of automobile manufacturing. As the company's business model is further refined, margins will improve and Tesla will gradually increase its market share to become a more dominant brand.

The road ahead carries some level of uncertainty but 2013 should be a transitional year for the company in terms of its finances.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Cox is a university teacher in international trade and finance. His articles appear on a variety of Web sites, including MarketBulls.net, Seeking Alpha, FX Street and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies and commodities). Trade ideas are generally based on time horizons of one to six months.

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