Answer this, Elon Musk: 5 tough questions about Tesla profits

Here are the five questions Tesla Motors Chief Executive Elon Musk needs to answer when the electric car company releases its fourth quarter and full-year financial results Wednesday afternoon.

1. Is a merger with Apple coming?

Musk met with Adrian Perica, a former Goldman Sachs investment banker who heads Apple’s mergers-and-acquisitions team, last year. Might Tesla -- and its astounding $25-billion market valuation for what really is a very small company -- be in play?  Would Apple bite?

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Or are they talking collaboration, such as an Apple investment in Tesla, or a joint venture to research and produce the batteries that both companies need by the billions to stay in business?   

2. How much does Tesla rely on the government to stay in business?

Each Tesla Model S sports sedan -- retail price of $70,000 to $100,000 depending on options -- gets up to $10,000 in government tax credits and rebates, depending on the state.  What happens when those go away?

Each sale also generates scads of special environmental credits that Tesla sells to other automakers. So far this year, the special California zero-emission-vehicle credits generated $129 million for Tesla. Does the automaker have a chance of operating profitably going forward without government rebates to buyers and these special credits?

3.  How fast can Tesla make cars?

Tesla is building about 600 vehicles a week. It delivered 22,450 cars last year. The automaker needs to increase its sales volume and drive down the cost of its raw materials and supplies if it is ever going to be truly profitable.

4. What are the prospects for the Model X?

Musk has said Tesla will launch its Model X sport-utility vehicle this year. This is an important line extension and offers a second vehicle in an important segment of the U.S. auto market. But are we talking about sales of a few dozen this year, or hundreds to thousands? Might delays push this launch into 2015?

5. What about a volume car?

At best, sales of Model S sedans and Model X SUVs will climb well into the tens of thousands but well below the volume of most autos on the market. Tesla needs to leverage its investment, battery knowledge and electric drivetrains to produce a car that it can sell by the hundreds of thousands. That’s the end game. Musk has talked of a “Generation Three” vehicle that will go on sale within a few years for $35,000 to $40,000, depending on what the government sales subsidies are at the time. Where is Tesla in development on this and will Musk give specifics about price, range and time frame?


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