Tesla Loses $38 Million In Q3

Graeme Kreindler
by Graeme Kreindler

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.

Graeme Kreindler
Graeme Kreindler

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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.

  • CanadaCraig You can just imagine how quickly the tires are going to wear out on a 5,800 lbs AWD 2024 Dodge Charger.
  • Luke42 I tried FSD for a month in December 2022 on my Model Y and wasn’t impressed.The building-blocks were amazing but sum of the all of those amazing parts was about as useful as Honda Sensing in terms of reducing the driver’s workload.I have a list of fixes I need to see in Autopilot before I blow another $200 renting FSD. But I will try it for free for a month.I would love it if FSD v12 lived up to the hype and my mind were changed. But I have no reason to believe I might be wrong at this point, based on the reviews I’ve read so far. [shrug]. I’m sure I’ll have more to say about it once I get to test it.
  • FormerFF We bought three new and one used car last year, so we won't be visiting any showrooms this year unless a meteor hits one of them. Sorry to hear that Mini has terminated the manual transmission, a Mini could be a fun car to drive with a stick.It appears that 2025 is going to see a significant decrease in the number of models that can be had with a stick. The used car we bought is a Mk 7 GTI with a six speed manual, and my younger daughter and I are enjoying it quite a lot. We'll be hanging on to it for many years.
  • Oberkanone Where is the value here? Magna is assembling the vehicles. The IP is not novel. Just buy the IP at bankruptcy stage for next to nothing.
  • Jalop1991 what, no Turbo trim?
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