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Tesla (NASDAQ:TSLA) has reported an unexpected third-quarter profit that shocked Wall Street analysts. The company reported that for the autumn quarter of 2018 it made a profit of $312 million on the back of $6.1 billion in revenue, which puts revenue at 158 percent up from a year ago. This also marks the largest profit Tesla has ever made, and the first profitable quarter in two years.
- GAAP net income of $312M, non-GAAP net income of $516M
- 56,065 Model 3s delivered to customers in Q3
- $3.0B of cash and cash equivalents at Q3-end, increased by $731M in Q3
- Model 3 GAAP and non-GAAP gross margin > 20% in Q3
Back in August, we reported on Tesla's second quarter earnings results and at the time CEO Elon Musk promised that for the remainder of the year Tesla would operate cash-positive and wouldn't need to borrow additional money. With today's report in hand, we can give Mr. Musk the nod. He kept his promise as the company increased cash-on-hand by over seven hundred million dollars.
Tesla shares soared by over ten percent in after hours trading late Wednesday.
Tesla rides Model 3 popularity to the bank
Make no mistake about Tesla's numbers today, its all about the Model 3. Production more than doubled while margins actually improved from the previous quarter.
Well, just how good is the Model 3 doing?
Tesla answered that with a rather stunning figure today. The Tesla Model 3 was the highest grossing vehicle sold in the United States for Q3! On a revenue basis, the Model 3 beat out heavyweight favorites such as the Toyota (NYSE:TM) Camry and Honda (NYSE:HMC) Accord, and it did it without breaking a sweat. Total revenue for the Model 3 surpassed $3 billion USD, and the Camry and Accord both barely scratched $2 billion.
The Model 3 is no-doubt boosted by the fact that only the higher tier models are currently getting sold. Deliveries thus far have been for units in the $50-60k range, and the long-awaited $35k Model 3 is only going to be offered starting early next year. Despite this, it's a stunning achievement that Tesla could go from producing so few at the year's start to the massive manufacturing and delivery ramp-up seen this quarter.
Another impressive feat is that while Q3 production sustained an average of about 4,200 units a week, that's still shy of the 5,000 units per week that Elon has been targeting, and well shy of the 7,500 to 10,000 units per week that Tesla is aiming for within the next calendar year.
Just last week we touched specifically on Model 3 profit margins. At the time we were expecting an optimistic number of around 30% gross margin, and today Tesla did shed a bit of light on this. The firm said it was able to achieve >20% margin on the 3, and given about $3 billion in Model 3 revenue we can say that the car contributed around $600 million in profit for the Palo Alto-based EV maker. We did forecast about $900 million profit and $3 billion revenue contributed by the Model 3 so we weren't terribly far off from the mark!
Great earnings numbers marks a happy ending to a crazy quarter for Tesla - Recap and Outlook Forward
What else can we say? Its been a wild ride for Tesla this quarter. Today's positive numbers from Tesla couldn't have come at a better time for employees, investors, and the Tesla-faithful alike.
“Q3 2018 was a truly historic quarter for Tesla,” CEO Elon Musk and CFO Deepak Ahuja wrote in the official earnings press release. “Model 3 is attracting customers of both premium and non-premium brands, making it a truly mainstream product.”
Just days into the third quarter Elon (now infamously) tweeted that he was considering taking the publicly traded company private, and that he had funding secured.
It turns out Musk actually didn't have the funding that he claimed was secured, and the potential backers, who turned out to be the Saudis, even distanced themselves from the discussions. Musk was then sued by the U.S. SEC for securities fraud the Tesla shares absolutely plummeted once the news broke.
Musk then settled the suit for a paltry $20 million of his own money, along with $20 million of Tesla's money, which put an end to the drama. As a result, Elon was ordered to step down as chairman for three years and two additional directors are to be appointed to the board. Overall the ramifications were almost nil in the scheme of things.
We even got to see Elon smoking weed on Joe Rogan's podcast and while hilarity insued, many investors were seriously shaken by the lack of foresight of a CEO of a publicly listed company.
Now Tesla finds itself in a much rosier picture. Model 3 numbers are absolutely fantastic and they don't show any sign of letting up. Musk has repeatedly told the world that deliveries could be as high as 10,000 units per week and the company still has over 400,000 reservations on the books.
Tesla also reiterated its Chinese ambitions, manufacturing will be commencing in the next few years in China, and the company was proud to report that a formal lease, outside of Shanghai, has been signed where the eventual Tesla factory will be built. This is a crucial medium-term piece for Tesla as China has slapped all U.S. auto imports with a massive 40 percent tariff which seriously dampens demand overseas.
The question that remains is that of capital. It seems Tesla has finally crested the corner in terms of the Model 3, production is up, efficiencies are finally up after a very hard learning curve, margins also look good and deliveries seem to be getting more streamlined. At this point Tesla should be able to wring out further efficiencies of scale which will further boost revenues and profits.
However, Tesla is really adept at burning cash, which should come as no surprise given the tech-laden products that it sells. Large amounts of R&D are needed for the things Tesla wants to build and there are some major new items on the horizon. Tesla is looking to bring a semi-truck to market, which will require a slew of new motors and batteries, and they are also looking to roll out the Model Y crossover even sooner, in 2020.
Elon has made it no secret that he seriously wants to avoid taking more money from outsiders. The company has around $10 billion in debt, with about a billion of that coming due in the next 6 months.