Tesla Surprises With Profitable Q3 on Great Model 3 Margins



Tesla only released monetary results for what it’s called”a truly historic third quarter,” with $312 million in GAAP net income driven by an unexpectedly robust 20 percentage gross margin over the Model 3.     

CEO Elon Musk promised that Tesla would be profitable in the last half of the season — and he is halfway toward fulfilling that promise.

Tesla actually didn’t expect to post 20 percent margins on its own Model 3 until next quarter and expects continued strong demand for the Model 3 in the U.S. and China. 

Now 's upgrade contradicts lots of the negative promises of this brief community's outlook for Tesla.

Financial highlights for the quarter

Here are some strong figures from the entire world 's disruptive automotive upstart:

GAAP net income of $312 million on revenue of $6 billion

Automotive revenue grew 82% over Q2, because of the Development of Model 3 deliveries

Free cash flow of $881 million 

$3.0 billion of cash and cash equivalents at quarter's end

Model 3 gross profit margin of greater than 20 percentage Tesla guides for continuing GAAP net income and free cash flow in Q4

Q3 usable highlights

Musk has at different times promised production speeds of up to 10,000 units per week. And Tesla has stated that it cannot be profitable on a 35,000 Model 3 without constant 5,000-unit production weeks.  

While that 10,000 amount is a bit of a stretch, Model 3 production averaged approximately 4,300 units per week, along with the company managed to drive production to 5,300 Model 3s in the last week of the next quarter. So, the brink of lucrative production appears to be at hand. 

Tesla opened four brand new store and service websites in the quarterto get a total of 351 locations worldwide. In addition, it intends to start up dozens of its body shops in the U.S. over the upcoming few quarters.  

The Tesla charging network stands over 11,000 Supercharging connectors and above 20,000 destination charging connectors globally.   

Model 3: “A truly mainstream product”

Now 's investor correspondence boasted of this Model 3's status as the bestselling car in the U.S. concerning revenue and the fifth-bestselling car concerning volume.  

CEO Elon Musk known as the Model 3″a truly mainstream product.”

Musk reported the Model 3 production procedure”stabilized” in the next quarter as the company went from”a steep S-curve to more gradual monthly improvements.” These changes allowed production of an all-wheel drive version of this Model 3 (a more complex car to assemble ), whilst labour hours per unit decreased by over 30 percent from the prior quarter — clocking in below the labour hours for Models S and X for the very first time.  

Automotive gross margin across all models jumped to nearly 26 percent from 20.6% in the past quarter. 

Delivery and logistics

The investor correspondence singled out logistics and delivery as the firm 's chief challenges in Q3 because its delivery system goes through a ramp akin to what its production system went during last quarter.

Tesla perspectives these struggles as”easier to solve than vehicle manufacturing” and seems to expand and improve its own direct-to-customer program, claiming,”delivering vehicles to the front door of a customer’s house or office is superior from both a cost and customer satisfaction perspective.”

Tesla's vehicle inventory level at the end of Q3 was”the lowest in over two years in terms of days of sales.”     

Reservation update 

Tesla finally updated its reservation amounts, writing that”less than 20 percent” of those 455,000 net reservations reported in August 2017 possess now been canceled. The company is expecting most of the rest of the reservations”to gradually convert to orders as we launch more versions of Model 3, introduce other financing options, and begin sales outside North America.”

The company announced a brand new “Mid Range” Model 3 before this month that comes with a shorter range and lower cost. Musk expects to Start taking orders from Europe and China for the Model 3 at the end of the season.    

And despite the tariffs on U.S. cars, China deliveries”still remained a material portion of our Q3 deliveries.”   

Solar energy growth and energy storage triples

Revenue and profitability for Tesla's electricity business are both advancing. And according to now 's publication, reports of SolarCity's death are an exaggeration.

The solar business installed 93 megawatts, mostly loans and cash earnings , up 11 percent from the previous few 's 84 megawatts.  Wood Mackenzie Senior Solar Analyst Allison Mond calculates that Tesla installed 53 megawatts of residential solar in each of the second and first quarters of the season (Tesla no longer breaks out residential solar earnings from industrial sales). 

Energy storage installs grew to 239 megawatt-hours, up 18 percent from last quarter and over twice the same quarter last year. Tesla claims that it is on track to triple electricity storage deployments year-over-year. 

Tesla is increasing Powerwall production (and price) to take care of its backlog and is”prioritizing residential solar installations that are combined with energy storage products” to increase revenue, profits and the client experience. Tesla asserts that selling through its shops and its own automotive client base”significantly” reduces its customer-acquisition costs.

Energy generation and storage revenue equates to $399 million, marginally up in the quarter but at a much greater margin of 17 percent. Historically, solar installations often decrease from the fourth quarter across the industry.   

Outlook and advice

Musk expects Model 3 quarterly deliveries and production to”continue to increase in Q4 compared to Q3.” Also, Tesla still intends to hit its objective of delivering 100,000 Model S and X vehicles this season. The company expects Model 3 margins to”remain stable,” while gross margins for Model S and X”will likely decline slightly in Q4,” because of tariffs on Chinese-sourced components.  

Tesla reaffirmed its prior guidance”that we expect to again achieve positive GAAP net income in Q4. Similarly, in Q4, we continue to expect to generate positive cash from operating cash flows net of capital expenditures.  Our cash position should remain at least flat in spite of our plan to repay $230 million of convertible notes in cash during Q4.” 

The company expects capex in following quarter to add purchasing land in China to get Gigafactory 3 along with the initial design of this plant.   

This was a hugely significant quarter for Tesla — along with the firm delivered the amounts. The stock is up 12% in after-hours trading. Tesla looks to continue to reduce costs and boost production when forcing down the price of this Model 3 to 35,000.   

“Sufficient Model 3 profitability was critical to make our business sustainable — something many argued would be impossible to achieve,” Musk said in a statement now. “Due to the ingenuity and incredible hard work of our team combined with an innovative vehicle design and manufacturing strategy, we have achieved total auto gross margin of ~25 percent.”


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