DETROIT Electric car maker Tesla Motors Inc (TSLA.O) cut its forecast for 2012 revenue on Tuesday because of a slower-than-expected rollout of its Model S sedan, sending its shares down almost 10 percent.
The company said it now expects full-year revenue of $400 million to $440 million, down from its prior outlook of $560 million to $600 million. It also announced a follow-on share offering that will raise about $150 million.
"We have methodically increased our Model S production at a rate slower than we had earlier anticipated," Tesla said in a U.S. Securities and Exchange Commission filing.
"Certain suppliers have experienced delays in meeting our demand and we continue to focus on supplier capabilities and constraints," the company added.
Tesla, backed initially by a group of Silicon Valley venture capital firms, has said it expected the Model S, with a base price of $57,400, to provide 90 percent of the company's revenue this year.
The company plans to roll out the Model X crossover utility vehicle in 2014 and a smaller sedan code-named Gen III in 2015.
In a research note to clients last week, Morgan Stanley analyst Adam Jonas called the sluggish ramp-up of the Model S "the worst-kept secret in the industry." He called the fears of the slow rollout "overdone" and upgraded his rating on the stock to "overweight."
"We think Tesla has the right idea: Get it right the first time," Jonas said. "Efficacy of the product is what matters most."
Tesla does not have the luxury of a larger automaker, which can get away with a launch that may require a recall, Jonas said. He acknowledged, however, that investing in Tesla's stock still involved "a leap of faith."
Tesla said Tuesday it expects third-quarter revenue of $44 million to $46 million, reflecting the lower deliveries of cars.
To increase production of the Model S, Tesla said it is working with suppliers for faster parts deliveries, adding automation and second shifts in some manufacturing areas and increasing manufacturing staff training.
It anticipates delivery of 200 to 225 Model S cars to customers in the third quarter, and 2,500 to 3,000 in the fourth quarter, putting it four to five weeks behind its previously announced delivery goals by year-end 2012.
Jonas last week forecast Tesla to achieve Model S production of little more than half its 5,000 target.
As of September 23, Model S reservations, excluding those already delivered, were about 13,000, up from about 11,500 at the end of June, Tesla said Tuesday.
While the company expects reservations to increase, it said cancellations rose in the third quarter as it asked the first several thousand customers on the reservations list to configure their cars for delivery or risk losing their production slot.
For 2013, Tesla said it plans to exceed its target for 20,000 Model S deliveries by reaching its targeted weekly production rate of 400 cars before the end of the year, as well as achieve a gross margin of 25 percent. It also expects to be close to breakeven on free cash flow at the end of 2012.
The company estimated the gross profit margin in the third quarter will range from negative 15 percent to negative 18 percent, hurt by the limited number of Model S sedans. It also cited manufacturing inefficiencies, higher costs for initial parts and the delay of development services revenue from German automaker Daimler AG (DAIGn.DE).
Tesla expects gross margin to "improve substantially and turn positive" in the fourth quarter as it ramps up Model S volumes and cuts costs.
It also said it expects to finalize its agreement on development milestones and related payments with Daimler in the fourth quarter.
Tesla said research and development spending for the third quarter will be about 20 percent lower than the second quarter, while selling, general and administrative expenses will increase modestly in the third quarter over the prior 3-month period.
It estimated 2012 capital spending of $220 million to $240 million.
The California-based company said it has fully drawn down its $465 million U.S. Department of Energy loan facility. After drawing down $71 million in the second quarter, Tesla said in July that it would draw down the remaining $33 million in the next few months.
Tesla disclosed it has amended the DOE loan agreement by delaying the timing of repayment of a portion of the loan. It also said it would work with DOE officials to develop an early repayment plan, and if the company doesn't hit its sales targets it may need to further amend the loan agreement.
Overall option volume on Tesla was 4.8 times the average daily levels with 19,000 puts and 12,000 calls traded at the close of trading on Tuesday, according to options analytics firm Trade Alert. One of the most active options was the October $26 strike put, carrying volume of 2,855 contracts.
"In early trades, some strategists were positioning for shares to continue to slide, buying out-of-the-money October put options," Interactive Brokers Group options analyst Caitlin Duffy said.
Tesla also said its chief executive, Elon Musk, has indicated an interest in buying more than 33,000 shares for about $1 million, or about $30 a share.
Tesla's shares closed $3 lower at $27.66 on Nasdaq.
(Additional Reporting By Doris Frankel in Chicago and Deepa Seetharaman in Detroit; Editing by Jeffrey Benkoe, Maureen Bavdek and Richard Chang)