Tesla Reports Q1 Profit, Cancels 40 KWh Model

Just ahead of their Q1 2013 earnings called, Tesla announced that they were profitable in the first quarter of the year, with deliveries exceeding their own targets. In addition, Tesla has also decided to discontinue the base trim of the Model S due to a lack of demand.

Tesla reported 4,750 deliveries of the Model S, up from their own estimate of 4,500 units, which, according to the company, helped them turn a profit this quarter. Crucially, Tesla claims that profitability is achieved even using GAAP principles, since non-GAAP accounting is more easily manipulated to reflect positive results.

The 40 kWh car, which started at just under $60,000, apparently had a take rate of just 4 percent, leading to Tesla’s decision to axe it. Instead, customers who ordered the base model will get a 60kWh model electronically limited to only use 40kWh of energy. Buyers can have this reversed by Tesla if they wish, and future owners will be able to perform the procedure as well. 60 kWh cars will also be Supercharger ready across the board.

Given that Tesla’s customer base is made up of extremely wealthy EV enthusiasts who are looking to the Model S as either a) a status symbol b) a third car or c) an outright toy, the death of the 40 kWh model makes sense. Few would realistically want a base Model S whether because of status signalling or the reduced performance (in terms of both acceleration and range). Customers interested in the Model S are much more likely to gravitate to the 60 kWh model or the full-bore 85 kWh version, in the same way that the S63 AMG is the best way to use the Mercedes S-Class as an expression of one’s wealthy.

The higher profit margins on the more expensive models are also beneficial to Elon Musk’s vision of a profitable auto maker. Despite his grandiose vision of himself as a 21st century version of Henry Ford, there is little margin in producing mainstream cars. Better to let Tesla continue to market to the very wealthy while slowly allowing their product to become more accessible, rather than an ill-timed push into the mainstream.