Tesla Achieves Small Profit for the First Time Ever

Moneybox
A blog about business and economics.
May 8 2013 5:07 PM

Tesla Achieves Small Profit for the First Time Ever

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The Tesla Model S, Motor Trend Car of the Year is introduced at the 2013 North American International Auto Show in Detroit on Jan. 15, 2013

Photo by STAN HONDA/AFP/Getty Images

Tesla Motors achieved a very modest $11 million profit according to its just-released quarterly earnings statement (PDF) but it's a milestone since that's the first profit they've ever earned. The company is also touting a much-higher profit figure of $15 million "[e]xcluding non-cash warrant and stock option items" but I think it's generally best to focus on Generally Accepted Accounting Principles in order to be able to make comparisons.*

The really good news is that Tesla should be able to expect some meaningful network effects in its business.

If there were no gas stations, then buying a gasoline-powered vehicle would be a very unattractive proposition. But absent a large fleet of gasoline-powered vehicles, opening a gas station would be an unattractive proposition. As the install base of electric cars grows, so will the supporting infrastructure. Thus electric vehicles become a more attractive sales proposition even without the manufacturers needing to do anything to improve quality or reduce prices. But a big question is whether you can get over that initial hump. Ability to achieve even a modest operating profit is thus a very positive sign. Any quarter when Tesla turns a profit is a quarter when Tesla doesn't go out of business, and the longer they stay in business the brighter their long-term prospects look.

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For now, though, Tesla's profitability is still quite dependent on the existence of favorable government subsidies. As public policy, I think that's fine. The availability of technology can help this important new industry deal with the inherent difficulty of competing against decades of entrenched infrastructure. But as an investor you have to consider the risk that the political winds are blowing in an unfavorable direction for the company.

*Correction, May 9, 2013: An earlier version of this post mistakenly said Tesla was claiming a non-GAAP profit of $11 billion.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.