By on October 25, 2018

tesla model 3

For only the third time in the company’s history, Tesla reported a quarterly net profit on Wednesday, though this time the automaker says it’s back in black for good.

Third-quarter GAAP net income was $312 million, Tesla revealed, with the company’s performance fulfilling CEO Elon Musk’s earlier promise to become cash-positive by Q3 2018. The automaker’s free cash flow was $881 million for the quarter.

Give thanks to the tent.

It was expanded production of the Model 3, some of which occurs outside the company’s Fremont, California assembly plant, that pushed Tesla over the top. The company reported gross margins of 20 percent on Model 3s sold in the third quarter, a higher figure than predicted, with the number of labor hours per Model 3 falling by 30 percent between the second and third quarter of this year.

While the average production rate of Model 3s continues to fall below Musk’s promised 5,000 vehicles per week figure, throughput was great enough to bring in the desired cash. And customers paid plenty — the introduction of a pricier dual-motor Model 3 this summer was the revenue generator Musk needed. Tesla reported $6.82 billion in total revenue for the quarter. Overall, some 5,300 Model 3s finished assembly in the final week of September, the company claims.

Tesla cites “logistical challenges” in the first part of the quarter, including problems in getting vehicles to buyers’ homes, but improved door-to-door delivery allegedly solved much of that.

In an earnings call that did not spark controversy, Musk claimed the company “can actually be cash flow positive and profitable in all quarters going forward,” minus those in which a debt payment comes due. The company has no plans to raise debt or equity, he said.

What the company does plan to do is move forward with production of the Model Y, a cheaper crossover that may be targeted at the company’s planned Shanghai assembly plant, which is slated to build Model 3s. That plant is expected to start humming in late 2019. The Model Y, of which Musk says he’s approved the final prototype, won’t arrive until 2020.

While Tesla plans to build the Shanghai plant in a “capital efficient” manner, suggesting a tent-like structure similar to the one at Fremont, getting the operation off the ground will nonetheless generate a hefty bill. Some analysts question Musk’s assertion that it won’t need to take on more debt. That said, actually turning a profit makes the prospect more palatable.

Tesla’s stock shot up nearly 13 percent in after-hours trading following the release of its quarterly earnings. After the antics of the past few months, this was news investors wanted to hear.

[Source: Reuters] [Image: Tesla]

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39 Comments on “Tesla Posts a Profit; Attention Returns to Company, not Musk...”


  • avatar
    Conslaw

    Now might be the time for Tesla to keep one eye out for an opportunity to buy Ford. Tesla’s market cap is 54 billion. Ford’s is 33 billion. I can see Ford falling to 25 billion. Making a tender ofer of Tesla stock may let Telsa acquire Ford for a stock dillution of about 1/3 with Tesla gaining control. Ford has profitable trucks, but virtually no cars and, most distressingly, nothing in the pipeline. Ford seems to have lost direction regarding electric vehicles. Ford has underused manufacturing plants. Tesla has a can-do mentality, but sometimes doesn’t have the means to carry out the ambitious projects. Ford seems to have no ambition, but does have a solid engineering pedigree. The Ford family might actually admire Musk for doing what Henry Ford did. I’m sure “Ford” would have to be in the combined company’s name. PLUS, if Tesla buys Ford, I think the company could sell another 200,000 Ford electric vehicles (that look A LOT like Tesla Model 3s) with 7,500 tax credit.

    • 0 avatar
      Conslaw

      Note the FCA market cap is only 23 billion, but there are so many issues with the company that I wouldn’t think of buying it.

    • 0 avatar
      01 Deville

      Comment of the day!
      Something worthwhile to read in a clickbait article. These comments are the reason I still come to this site.
      I do not know enough to agree or disagree with your analysis, but I appreciate something worth reading.

    • 0 avatar
      salmonmigration

      Hard to see what would be in it for Tesla. If Ford suddenly got good leadership overnight, it would still take a minimum of half a decade to begin to make profitable designs with long term potential and refit its plants. In that same time and cost window Tesla could theoretically just scale up on their own. The EV market is growing, but not exploding. There’s no room for 1M new Teslas a year yet.

    • 0 avatar
      Asdf

      Tesla should focus ALL its attention on finally fixing the defect in ALL Teslas ever built, namely the fact that they forever to charge, when it reasonably shouldn’t take more than a maximum of 5 minutes. Distractions such as taking over Ford is the last thing Tesla needs – unless Elon Musk has finally seen the light and realized that what he needs for his Tesla models to be competitive is an internal combustion engine and a fuel tank, but he wouldn’t need to BUY a company to get his hands on that.

    • 0 avatar

      Ford is already owned by VW. Almost. So no. May be FCA?

    • 0 avatar
      ect

      Last time I looked, the Ford family , despite owning only about 6% of the equity, controlled more than half the voting power. Which means they elect the directors and run the show.

      Anybody who buys all of the non-family stock gets nothing except the right to receive any dividends the Board decides to declare.

      Unless the Ford family decides to sell (unlikely, methinks), control of Ford is not going to change.

    • 0 avatar
      Hummer

      Rumors of a 4 door mustang surfaced about a week ago so I’m not sure…

  • avatar
    NoID

    The burning question in my mind is: what do they name their 5th model? They’re all set to spell S3XY, what’s next?

  • avatar
    TimK

    Let’s see, they are going to 1) build a new plant in China, 2) introduce a new car, 3) build a pickup, 4) build semi tractors, 5) expand delivery/charging /service infrastructure, all with no need for share sales or borrowing.

    Sounds perfectly reasonable — if you’re BSC.

  • avatar
    mor2bz

    now would seem the ideal time to take a page out Amazon’s book and reduce prices. This profit seems to have quieted quite a few folks, but I will squawk that the basic premise and promise of Tesla has not been kept.

    to hell with the roadster, S, and X, NOT TO MENTION THE SEMI, NEW CAR MODEL, NEW PLANT, AND god knows what else he is stretching himself, investors, workers, and facilities with —— KEEP THE PROMISE OF A 35K
    MODEL 3 so 200,000 depositors don’t buy something from someone else.

    He has captured the market, now it is time to man up and keep it. A few
    coins could come out of his own pocket to incentivize the employees who are the ones who are really making this happen while Mr. Musk takes down pop stars and holds the weed.

  • avatar
    Pch101

    As of 3Q2018, Tesla delivered 84,460 units of the Model 3.

    Tesla reports that it had about 455,000 Model 3 reservations as of August 2017, and that “less than 20%” of those reservations had since been cancelled as of the end of 3Q2018.

    So if Tesla moved 84k units and lost reservations on about another 90k units, then that means that the Tesla has gone through about 40% of the earlier reservation list and there are about 281k reservations remaining. (The number of buyers is about equal to those who are getting their deposits refunded.)

    The fact that Tesla has changed its delivery system so that new higher dollar customers get to cut in line in front of the earlier depositors would suggest that there is a revenue problem. They need a lot of people to pay $50k+ for the Model 3, and they have run out of them on the list.

    A lot of those people on the reservation list expected a $35k car and probably can’t or won’t buy a $50k car. Tesla can’t provide that $35k car without losing considerable money, otherwise it would already be doing it.

    All of that adds up to this quarter probably being a blip. The average revenue per unit is not sustainable. The high dollar customers who were served first are now gone, which has prompted Tesla to find more of them because it needs them to keep those revenues from falling.

    • 0 avatar
      SCE to AUX

      Everything you’re saying makes sense. Obviously, the $35k car will have to be a real stripper, and Tesla is good at making their low-end cars undesirable. Notably, nobody really knows what the content of this mythical car will be.

      I am one of those potential customers who won’t buy a $50k car, which is a promise I made in these pages 2-1/2 years ago when I reserved a Model 3. Since then I have cancelled (March ’18), test driven, and almost bit on a reduced demo car. But the price (and a few other factors) continue to keep me away.

      The key for Tesla is battery production cost, and IIRC theirs is considered to be fairly low, and still falling. The rest of the vehicle’s costs won’t differ much from other mainstream vehicles. Other than GM and Nissan, everyone else’s EV is a compliance car – likely due to high battery production costs and/or availability. The Bolt and Leaf are probably money losers propped up by trucks and SUVs.

      Plan B would be a price increase on the base Model 3, but I believe Mr Musk will borrow more money before doing that.

      As for the future, I doubt it will be an unbroken stream of profitability for Tesla.

      • 0 avatar
        Pch101

        I predicted before it was launched that the Model 3 would be a $45k car.

        It seems that I was optimistic.

        Tesla has always been a bet on battery costs. And now it would seem that Musk is also betting on selling driverless technology to other OEMs, which is one reason why he is so defensive about it whenever there is a crash.

        If Musk is right (and I doubt that he is), then Tesla really would be like a tech company. Every additional unit of driverless technology sold would cost very little to make; most of the costs are front-loaded in the form of R&D, so every sale would be like printing money.

        However, the industry isn’t fond of paying big money for stuff made by others. The OEMs would rather have their own product and brand it, or else buy it as a commodity product on the cheap.

        And the failure rate is still too high for mass public consumption. This isn’t like normal software for which crashes are no big deal; the failure rate has to be barely above zero for it to be acceptable.

    • 0 avatar
      vvk

      That volume is based on nothing but hype and good will of people who want a cool car. Wait until agnostic people get the wind of this amazing american made free car that they can buy and get all the conveniences of not having to look for gas or even actually drive the car. Free because if you drive a lot, the car pays for itself in gas savings alone. You will have millions of people wanting it and trading in their F-150s. And then Model Y will come out, and the pickup truck.

      • 0 avatar
        Pch101

        (wrong place)

      • 0 avatar
        Pch101

        You didn’t understand the comment to which you responded, vvk.

        • 0 avatar
          vvk

          > there are about 281k reservations remaining.

          I believe you are trying to imply that the demand for higher priced version of the M3 is drying up and that Tesla is not able to continue making a profit because they cannot make money on the 35k base model. Where did I go wrong?

          • 0 avatar
            Pch101

            If the car isn’t profitable at $35k, then it isn’t profitable at $35k.

            That car doesn’t yet exist because it would sink the company.

            Didn’t GM teach you that you can’t make up for it with volume?

            Tesla needs to find a lot more $50k+ buyers for this to work. It has run out of them on its original reservations list. I would not assume that there are enough.

          • 0 avatar
            vvk

            Pch101, I agree that the $35k M3 would not be possible at this time. I also cannot help but wonder if the demand for higher priced version is drying up, since Tesla seems to be making SOME effort to shore up demand. However, we just don’t know that. They are still selling every one they can build and are production constrained. Also, if they were really running out of interested buyers, don’t you think we would see at least a minimum amount of marketing and advertising to entice more consumers to consider buying a M3? I sometimes check out what people list on leasetrader.com and it amazes me how much money people are willing to pay for the most mediocre cars. For many people with long commutes a long range EV would make huge financial sense. I was paying between $450 and $550 per month for fuel driving my ICE cars before getting my MS. Now I spend $60/month in the summer and $100/month in the winter on electricity to charge the car. That is a huge savings that goes a long way in making the MS affordable. Not to mention how incredibly annoying it was to have to go to a gas station almost every day! If more people understood all the benefits of EVs, a lot more people would be interested.

          • 0 avatar
            Pch101

            Tesla is obviously not production constrained, otherwise it wouldn’t be displacing existing deposit holders in the hopes of attracting new customers who are willing to pay more.

            Just as the BMW 3-series would not be profitable if it sold only the M3 or Toyota would not be profitable if it only sold SE editions of the Camry, Tesla can’t just sell higher-end models into perpetuity. Otherwise it will run out of customers in a hurry.

            Tesla is revenue constrained, not production constrained. At the rate that it’s going, it will refund the deposit of a reservation holder for every Model 3 that it sells.

          • 0 avatar
            mcs

            @pch101: Tesla is production constrained because of Panasonic production constraints. The reason they came out with the midrange pack is that it uses fewer cells and lessens the production constraints a bit.

            Again, to make the $35k car possible, they’ve come up with a new design for the battery pack that lowers costs. Those lower costs will apply to the larger packs and higher-end models as well. That pack won’t be in production until Q1.

          • 0 avatar
            Pch101

            Tesla is obviously not production constrained, otherwise it wouldn’t be displacing existing deposit holders in the hopes of attracting new customers who are willing to pay more.

          • 0 avatar
            Dan

            “For many people with long commutes a long range EV would make huge financial sense. I was paying between $450 and $550 per month for fuel driving my ICE cars before getting my MS. Now I spend $60/month in the summer and $100/month in the winter on electricity to charge the car. ”

            $500 at $3/gallon will take a 25 mpg car 4,167 miles.

            4,167 miles in a Tesla S at 3 mi / kWh is 1,400 kWh of juice.

            Where on earth can you get 1400 kWh for $100 (7c/kWh) let alone $60 (4c/kWh)?

      • 0 avatar
        stuki

        ” Free because if you drive a lot, the car pays for itself in gas savings alone.”

        I remember vacationing in Mexico being free, if I only drank enough Mexican beer…..

        • 0 avatar
          vvk

          > $500 at $3/gallon will take a 25 mpg car 4,167 miles.

          $3.60 @ 15 mpg for me. I had to stop for fuel almost every day.

          Remember, the best selling Ford F-150 gets about 15 mpg. And most large crossovers that most people buy these days are not much better than that.

          • 0 avatar
            rpn453

            Clearly, Tesla’s marketing needs to target wealthy people who needlessly drive trucks around with empty beds and want to spend a large amount of money to save a small amount on fuel compared to an efficient ICE car!

            Unfortunately, most of the truck owners I know regularly haul sleds and quads, tow large trailers, and need aggressive tires to handle muddy/snowy unpaved roads. And their sport sedans are often used for long road trips with no quick charge access along the way.

            I do think a basic, inexpensive Tesla probably will eventually be an economical option for people needing basic transportation, if the batteries prove to be durable.

    • 0 avatar

      I agree. Even TSLA bears like me expected a profit this quarter. They essentially got to sell 6 months or more of m3 demand in a single quarter. The issue does seem to be demand. What happened to the 5k, 6k then 10k weekly production? After hitting 5k once with an all hands on deck effort production for the quarter was in the low 4s actually lower than the sales rate, When you factor in the huge accounts receivable increase it is looking like they made a large fleet sale or similar. The recent intro of the 46k model suggests they are trying to get some of the 35k people to step up. Probably the majority of the waiting list is for the model they originally said would be available in November

      2017

      • 0 avatar
        Pch101

        Sorry, but there is no indication that there were discounted fleet sales.

        The data suggests the opposite: ARPU (average revenues per unit) are so high that they are at unsustainable levels when you consider the unit mix.

        Tesla is selling its most expensive versions of the Model 3 now. It is running out of customers who will pay that kind of premium for a loaded car. It is trying its best to find new customers who will pay $50k+ for a car because all of those $35k reservation holders would torpedo the company if Tesla made cars for them now.

        The question is whether it will ever be possible to serve those customers at a profit. Tesla obviously claims that it can, but I have my doubts.

  • avatar
    vehic1

    The question remains – will Tesla survive in the long run, as its $35k – $7.5k promised entry-level vehicle – mutates into a rather upper-middle-class $50k vehicle? Buyers who could have stepped up from a $25k Camry, and saved on fuel – won’t all care to stretch up to 50.

  • avatar
    indi500fan

    From most accounts, their factory is turning out paint and assembly quality comparable to GM X-cars of the early 80s – the Model 3 hit the bottom ranked position on Truedelta. Maybe worse because I’ve read Musk bragging they don’t do block changes instead introduce fixes on a continuous basis and wonder if they have any configuration control. I think the service side is going to be overwhelmed. People like the cars, but once you get past the hard core e-drive fans, not sure if the customers will be happy.

    • 0 avatar
      TimK

      What exactly is Tesla’s “service side”? From what I’ve read the S and X cars are were typically towed away to a distant repair location, some even going all the way back to California from Canada. With model 3s hitting the streets in volume now, where are the trained mechanics, service manuals, parts provisioning, etc. that one might expect to see?

      • 0 avatar
        Scoutdude

        Well as far as the factory trained technicians go I know they are working on that, a touch late if you ask me.

        I know the guy who used to teach Auto Shop at my local HS was hired by Tesla back in Apr to set up and run a factory training program at a local vocational school that has other factory training programs.

        The interesting thing he posted on linked-in a month or so ago he was driving a 3 back from the plant to Seattle for use in the training program.

  • avatar
    SunnyvaleCA

    I wonder how much the soon-to-be-reduced federal tax incentive is pulling demand forward. People are trying to buy now with the full incentive instead of waiting. Just as the incentive is being phased out, competitors will be introducing competitive cars that have the full incentive. That won’t be pretty.

    • 0 avatar
      Christopher Coulter

      We have a real world precedent to test your hypothesis. Specifically the EV market in Hong Kong last year and Tesla in particular. It got SO BAD that Hong Kong has had to reinstate the incentives to try to juice EV sales.

  • avatar
    HotPotato

    Tesla fanboys assured us the base $35k model could be done because Tesla was setting up a fully automated production line, aka the “alien dreadnought,” that would basically eliminate the need to pay human assemblers. It was reported that the highly automated line collapsed almost immediately and a humbled Musk quickly reverted to more conventional production.

    So the question is, without the robotized factory, is a $35k Model 3 possible? If the rumors of the Model Y being slated for assembly in China are true, is labor cost a reason why?

    And given that Tesla pays so-so wages, uses lots of temps, and requires mandatory overtime that literally works people sick, how big a piece of the puzzle is labor cost really?

    Anyone who knows about these things care to chime in? I’m wondering if a $35k model is literally impossible or not.

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