Tesla Motors, Inc. (TSLA - Analyst Report) reported adjusted loss (excluding one-time items other than stock-based compensation expense) of 25 cents per share in the third quarter of 2014, deteriorating from adjusted loss of 4 cents in the year-ago quarter. The loss was significantly wider than the Zacks Consensus Estimate of a loss of 15 cents.

Third-quarter 2014 adjusted results excluded the impact of non-cash interest expenses related to convertible notes of 15 cents per share and deferred gross profit of 12 cents for Tesla’s Model S cars due to lease accounting. On the other hand, third-quarter 2013 adjusted results excluded the impact of non-cash interest expenses related to convertible notes of 3 cents per share and deferred gross profit of 21 cents for its Model S cars due to lease accounting. Including these items, the company reported net loss of $74.7 million or 52 cents per share compared with $38.5 million or 28 cents per share in the third quarter of 2013.

Tesla Motors, Inc - Earnings Surprise | FindTheBest

Excluding the impact of the deferment of Model S revenues due to lease accounting, top line jumped 54.7% to $932.3 million in the quarter from $602.6 million a year ago. Revenues also surpassed the Zacks Consensus Estimate of $868 million.

Tesla delivered 7,785 cars in the third quarter, missing the guidance of 9,000 deliveries but increasing 2.7% over the second quarter of 2014.

Revenues (on a reported basis) from Automotive sales, jumped to $849 million in the quarter from $430.2 million a year ago. Apart from higher vehicle deliveries, Automotive sales also benefited from $31 million of powertrain sales to Daimler AG (DDAIF) for the Mercedes-Benz B Class Electric Drive and $93 million of regulatory credits, including Zero Emission Vehicle (“ZEV”) credits.

Reported revenues from Development services (producing electric vehicle powertrain components and systems for other automobile manufacturers) improved to $2.8 million from $1.2 million a year ago.

Financial Position

Tesla had cash and cash equivalents of $2.4 billion as of Sep 30, 2014, compared with $845.9 million as of Dec 31, 2013. Long-term debt was $2.4 billion as of Sep 30, 2014, versus $586.3 million as of Dec 31, 2013.

Cash flow from operating activities amounted to $29.1 million in the first nine months of 2014, compared with $130.8 million in the year-ago period. Capital expenditures increased to $601.2 million from $174.8 million in the first nine months of 2013.

Model X Update

Tesla has decided to delay the deliveries of Model X to the third quarter of 2015 so as to increase its validation testing time. It believes that this will ensure the best possible product quality and also prove to be beneficial for the company in the long run, although it will adversely affect earnings in the short term.

Outlook

Adjusted earnings per share are expected to be about 30–35 cents in the fourth quarter. Tesla expects to lease about 3,000–3,500 vehicles in North America in the quarter.

Both research and development expenses and selling, general and administrative expenses are projected to rise approximately 10% in the fourth quarter. Capital expenses are expected to be around $350 million in the quarter. Tesla is investing heavily in increasing production capacity, development of Model S and Model X, the Gigafactory construction and expansion of sales, services and Supercharger infrastructure.

Adjusted automotive gross margin, excluding ZEV credits, is expected to surpass 28% by the end of 2014. The company believes that declining parts prices and economies of scale will benefit its gross margin.

Production volume for 2014 is expected to be around 35,000 vehicles. However, the automaker expects to deliver about 33,000 vehicles globally in 2014, up 50% over 2013, but lower than the previous forecast of 35,000 vehicles due to production loss in the third quarter resulting from plant retooling.  The company also plans to boost production volume to 2,000 units per week by the end of 2015.

Tesla currently carries a Zacks Rank #5 (Strong Sell). Investors interested in the auto industry could consider better-ranked stocks like Gentex Corp. (GNTX - Snapshot Report) and STRATTEC Security Corporation (STRT - Snapshot Report). Both these stocks sport a Zacks Rank #1 (Strong Buy).