Tesla Motors Inc (NASDAQ:TSLA)’s margins for the first quarter were better than they appeared in the automaker’s recent earnings report, according to analysts at Deutsche Bank. As a result, they say that even though Tesla’s operating expenses increased significantly, they believe there’s support for “significant intermediate term earnings.”

Tesla Motors TSLA

Deutsche Bank remains at Neutral

Although analyst Rod Lache maintained his Neutral rating and $220 per share price target on Tesla Motors Inc (NASDAQ:TSLA), he noted several positives in the automaker’s fundamentals based on the latest earnings report. In Lache’s research note, he noted that Tesla stock has been weak since the earnings report because of several factors.

He noted that the stock corrected itself from prior strength and that the results were just in line with expectations rather than a beat of consensus estimates. In addition, Tesla Motors Inc (NASDAQ:TSLA) reported a ramp-up in operating earnings for the current quarter that’s faster than expected. The automaker’s shares are also becoming more diluted because of the new leasing program.

Tesla’s margins better than they appeared

The analyst examined Tesla Motors Inc (NASDAQ:TSLA)’s 10Q filing with the Securities and Exchange Commission. He estimates that the automaker’s gross margin was 26.6% excluding certain charges, compared to the 25.4% Tesla reported. He said the fourth quarter “appears to have been a legitimate 25% margin quarter, after netting out a warranty gain and a 1x charge which offset the gain.”

He said that in the 10Q filing, Tesla Motors Inc (NASDAQ:TSLA) reported $8.12 million worth of changes in pre-existing warranties during the first quarter. He believes that includes the $2 million one-time charge in connection with the “additional underbody protection” Tesla provided in the wake of the fires that happened when a couple of drivers ran over pieces of metal in the road. Excluding that charge, he noted the 26.6% margin rather than the reported 25.4% margin.

Lache believes this means that his 26.1% margin estimate for the second quarter look “quite achievable” and that Tesla Motors Inc (NASDAQ:TSLA) can reach 28% by the fourth quarter of this year, “even if there is some moderation of mix.”

Tesla looks good moving forward

The analyst noted that by 2018 or 2020 and with higher volumes, Tesla Motors Inc (NASDAQ:TSLA) expects to have operating expenditures at around 10% to 11% of sales, with gross margins in the mid-20% range. The automaker is predicting EBIT margins in the mid-teens and earnings per share in the $20 range before receiving any benefits from adjacent businesses not in the auto industry.

He believes that Tesla Motors Inc (NASDAQ:TSLA) will hit 500,000 units by 2019 or 2020and have revenue of around $26.8 billion. That would imply $2.7 billion to $2.9 billion in operating expenditures. In addition, he said as Tesla continues to improve its costs, he sees the possibility of gross margins reaching the low 30% range by next year and the following year. He estimates that this would provide an EBIT margin in the low- to mid-teens by 2016, which would be far earlier than the 2019 to 2020 time frame Tesla management has suggested.