Tesla (NASDAQ: TSLA) shareholders got mostly what they wanted from the company’s third quarter earnings. Perhaps what they heard from founder Elon Musk as he spoke on the earnings call was more important. There is, he said, too much demand for our cars. We don’t have the capacity to build enough of them. Unfortunately, forecasting capacity has been an Achilles Heel of the auto industry since its inception. Musk has to hope that he can get the balance between the number of cars Tesla will sell in the next few years, and the company’s ability to build them

Looking back, earnings for the third quarter show that the promise Tesla said it would deliver has largely been kept, at least in the very short term. Musk is fond of non-GAAP numbers as are most people who find normal accounting procedures make their financials look bad. On a GAAP basis, revenue for the quarter was $431 million, up from $50 million in the same quarter a year ago. That remains at about the level of what a large car company like Ford (NYSE: F) produces each day in sales. But, the markets cannot be convinced Ford’s sales will rise eight or nine fold each year. Tesla lost $38 million which is only a relief in light of the fact that its lost $111 million in the same period a year ago.

Most of the earnings call conversation was about sales outside the U.S. which complicates the manufacturing capacity problem. Making small numbers of cars at small plants around the world gets balanced against making them one or two places and shipping them. The risk with small factories is that a modest drop in demand can make them redundant from a manufacturing standpoint. Large central facilities cost tremendous sums to build–front loading much of the risk.

The capacity question also hinges on Musk’s belief that Tesla can become more than a niche car company. He plans a crossover, and less expensive models, which might retail for as little as $30,000. Lower priced cars tend to batter margins. Sometimes it is better to be like Porsche than like Ford. If Musk persists in his plans, he will run directly up against the global luxury monsters–Mercedes, BMW, Lexus, and Audi. Each will launch eventually, or has already said it will launch, direct competition shortly. These companies have decades of brand equity built through remarkable R&D, product planning, and marketing success. Tesla faces higher and higher competitive hurdles as it grows.

Be careful what you wish for…

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