Tesla Loses $38 Million In Q3

Graeme Kreindler
by Graeme Kreindler
tesla loses 38 million in q3

After reporting a net loss of $38 million in its Q3 filings earlier today, Tesla suffered a loss of over 12% in afterhours trading. The stock, which has grown nearly 80% since the beginning of the year shot down almost $22 since the markets closed on November 5th.

In my last look at Tesla in Q1 of 2013, the company had posted its first net income, a tidy $11 million. However, analysis revealed that the company’s profitability, which garnered praise from across the industry, could not be attributed to the OEM’s main objective, the production and subsequent sales of its automobiles. Rather, Tesla’s profit was derived from “Other Income,” which is accounting jargon for money that is made outside of the scope of the company’s normal operations.

Two fiscal quarters later, and the profitability structure of Tesla is steadily improving, with Tesla exhibiting signs of strong operational profitability. This is attributable to Tesla’s increase in gross margin to 24%, from 17% at the beginning of the year. The company reported a gross profit of about $103 million for the quarter. What this means is that by simply taking all of Tesla’s sales, less the costs of goods sold, the company is in the black. Contrast that from a year ago, when Tesla’s gross loss was almost $9 million.

This is quite an encouraging figure, especially considering the steady decline of ZEV credit revenues. Back in Q1, ZEV credits were responsible for 12% of Tesla’s revenue, while it now equates to about 2% of total sales. Additionally, Tesla’s Statement of Cash Flows reports positive cash flows from operations of $102 million.

One thing that has not changed for the company is its struggle to manage its operating expenses. With a total of $133 million for the quarter, Tesla’s fixed costs effectively wipe out any profitability achieved on the top line. For the past two quarters, Tesla’s operating expenses equaled about 30% of sales. While gross margin has improved, there is simply not enough unit contribution to cover the remaining costs when costs of sales are 86% of revenue. The recipe to profitability is simple. Tesla must either bring down its fixed costs, or continue to improve its margins. A combination of both is the best case scenario.

In its letter to shareholders, Tesla remarks that R&D costs are up due to work on a right hand drive configuration for the Model S, and development work on the Model X. Selling General and Admin (SG&A) also increased, as the company is pushing its global expansion and growing its Supercharger network. Both of these expenses are key to Tesla’s future success. Continued development and innovation of new and existing technologies is essential for the electric automaker to diversify its product offerings while also continuing to make them more practical and accessible to the larger population. As a result, a reduction in operating expenses seems unlikely in the near future.

One of the primary responsibilities of any publicly traded company is to deliver value to its shareholders. With an earnings per share figure of $-2.09, Tesla has not done a great job of doing so to date. While it is still too early to tell whether the hype is real for Tesla, it is clear that after today’s results, some of the luster has been lost. I am no investment advisor, but I am a fan of history, and historically, Tesla’s poor profitability has remained a constant.

All figures taken from Tesla’s SEC Filing

Graeme Kreindler is an HBA Candidate at the Richard Ivey School of Business at The University of Western Ontario.

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  • Porschespeed Porschespeed on Nov 07, 2013

    So Mr. Kreindler, Do give us a total accounting of 'money in' and 'profit out'. Oh, that's right, it's something around negative $500MM...I understand educational institutions like to promote this sort of nonsensical accounting, but those of us who have functioned in the real world get that the black eventually has to be greater than the red. Even for GM... Tesla will never, ever, ever, actually *make* money on sales. Let alone enough to recoup initial investment. Ever. Even after they run Musk out of town on a rail. Just like they did at PayPal. Before it got big. Musk may be a conman extraordinaire, but that never works in the long run. Just ask Malcolm Bricklin, or more importantly, anyone foolish enough to buy into Chery...

  • LALoser LALoser on Nov 22, 2013

    I just worked on a new Tesla service center today. It is amazing the "value engineering" going into it.

  • Alan The Prado shouldn't have the Landcruiser name attached. It isn't a Landcruiser as much as a Tacoma or 4 Runner or a FJ Cruiser. Toyota have used the Landcruiser name as a marketing exercise for years. In Australia the RAV4 even had Landcruiser attached years ago! The Toyota Landcruiser is the Landcruiser, not a tarted up Tacoma wagon.Here a GX Prado cost about $61k before on roads, this is about $41k USD. This is a 2.8 diesel 4x4 with all the off road tricky stuff, plus AC, power windows, etc. I'm wondering if Toyota will perform the Nissan Armada treatment on it and debase the Prado. The Patrol here is actually as capable and possibly more capable than the Landcruiser off road (according to some reviews). The Armada was 'muricanised and the off road ability was reduced a lot. Who ever heard of a 2 wheel drive Patrol.Does the US need the Prado? Why not. Another option to choose from built by Toyota that is overpriced and uses old tech.My sister had a Prado Grande, I didn't think much of it. It was narrow inside and not that comfortable. Her Grand Cherokee was more comfortable and now her Toureg is even more comfortable, but you can still feel the road in the seat of your pants and ears.
  • Jeffrey No tis vehicle doen't need to come to America. The market if flooded in this segment what we need are fun affordable vehicles.
  • Nrd515 I don't really see the point of annual inspections, especially when the car is under 3 years (warranty) old. Inspections should be safety related, ONLY, none of the nonsensical CA ARB rules that end up being something like, "Your air intake doesn't have an ARB sticker on it, so you have to remove it and buy one just like it that does have the ARB sticker on it!". If the car or whatever isn't puking smoke out of it, and it doesn't make your eyes water, like an old Chevy Bel-Air I was behind on Wed did, it's fine. I was stuck in traffic behind that old car, and wow, the gasoline smell was super potent. It was in nice shape, but man, it was choking me. I was amused by the 80 something old guy driving it, he even had a hat with a feather in it, THE sign of someone you don't want to be driving anywhere near you.
  • Lou_BC "15mpg EPA" The 2023 ZR2 Colorado is supposed to be 16 mpg
  • ToolGuy "The more aerodynamic, organic shape of the Mark VIII meant ride height was slightly lower than before at 53.6 inches, over 54.2” for the Mark VII."• I am not sure that ride height means what you think it means.Elaboration: There is some possible disagreement about what "ride height" refers to. Some say ground clearance, some say H point (without calling it that), some say something else. But none of those people would use a number of over 4 feet for a stock Mark anything.Then you go on to use it correctly ("A notable advancement in the Mark VIII’s suspension was programming to lower the ride height slightly at high speeds, which assisted fuel economy via improved aerodynamics.") so what do I know. Plus, I ended a sentence with a preposition. 🙂