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 "
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, 2013Tesla has been able to do something very few automakers have been able to do: capture the minds, and now wallets, of a huge portion of the American public. That's part of the reason shares are up 296% year-to-date. There is an incredible amount of hype surrounding the company, and Tesla has managed to surpass that hype. TSLA data by YCharts
Deutsche Bank analyst Dan Galves, who recently upgraded the stock, noted Tesla is proving electric vehicles are here to stay. "We continue to believe Tesla is proving out the inherent advantages of EV's, has largely solved the range disadvantage, and has visibility to cost-parity vs Internal Combustion competition on the Gen3 vehicle," Galves wrote in his note. Though the company left 2013 global delivery estimates at 21,000 units, Tesla really talked up the fact it could deliver as many as 40,000 units by late 2014. That is mostly Model S units, with some Model X thrown in, as the SUV will be available late 2014. Demand, not only in North America, but also Europe and Asia, is exceptional for the car. Musk noted China is a "huge market," and will start to become prevalent in the latter half of 2013, as Tesla becomes firmly entrenched in the country. Tesla fired on all cylinders (pun intended) this quarter, Morgan Stanley analyst Adam Jonas wrote in a note. "Despite expectations that continue to rise nearly as fast as the share price, Tesla seems to have found a way to deliver yet again," he said.