Tesla reports $143M Q3 profit as revenue drops

Tesla Inc. turned a surprise profit in the third quarter of 2019, even as the Silicon Valley electric-vehicle company's revenue fell for the first time since 2012 when the Model S sedan began production.

Investors reacted positively. The automaker's stock rose nearly 20% in post-market trading Wednesday night. Shares were down 24% year to date at close.

In an update to shareholders, Tesla said it posted net income of $143 million in July, August and September, a 41% decline from last year on $6.3 billion in revenue, an 8% decline. The vast majority of the cars Tesla is selling are Model 3 sedans, which start at less than half the cost of the lowest-priced Model S luxury car or Model X SUV. But its vehicle gross margins rose to nearly 23% as its operating expenses fell.

"Quarter three was obviously a strong quarter with record deliveries," CEO Elon Musk said on a conference call. "We made great strides in controlling costs and shifted back to profitability while generating strong cash flow."

The company reaffirmed it is "highly confident" in exceeding 360,000 deliveries in 2019. It delivered a record more than 97,000 vehicle to customers in the third quarter, but it fell short of its six-digit target. To meet its year-long guidance, it would need to deliver 105,000 vehicles in the final three months of the year.

Tesla, however, this month began trial production at its new $2 billion assembly plant in Shanghai. In April, the automaker said it aims to produce 1,000 vehicles per week in China by the end of the year. But the plant comes online as new electric vehicle sales in the world's largest market have fallen year-over-year over the past three months after the country decreased subsidies in June.

"Tesla believes it will begin production of its Model 3 in Shanghai this month, but the timing could not be worse given the broad weakness in China's auto market," noted David Kudla, chief investment strategist for Mainstay Capital Management LLC, in a statement ahead of the earnings release.

Musk also confirmed a second building at the Shanghai "Gigafactory 3" site will be used to build batteries and modules. The company will announce the site for a European plant before the end of the year, Musk added.

Tesla reported pre-tax earnings in the third quarter of $876 million, down 7% year-over-year. Automotive revenue was $5.4 billion, down 12% year-over-year, and it produced 96,000 vehicles in the quarter. Tesla delivered 79,703 Model 3s compared to 17,483 of the Models S and X, which Musk said the company was making more for "sentimental reasons than anything else" and will play a minor role in Tesla's future. The automaker also leased more vehicles than last year.

The company said the Model Y compact SUV now is expected to launch in summer 2020, ahead of the previously anticipated fall date. The vehicle is expected to produce greater margins for the company than the Model 3, said Zachary Kirkhorn, Tesla's chief financial officer. Tesla also has a pickup truck, semi-truck and roadster in development.

"If Musk stays true to his word and the Model Y launches sooner than anticipated and in a seamless fashion, this will no doubt be a positive step for the company next year," Jeremy Acevedo, senior manager of insights for auto information website Edmunds.com Inc. "But questions remain on whether the Model Y is a product that American shoppers can actually rally around in the same way that they've done with the Model 3 without cannibalizing other vehicles in the Tesla lineup."

The company's revenue included $30 million in deferred revenue from its "Autopilot" self-driving platform called Smart Summon in which Tesla owners can call their vehicles to come to them without a driver behind the vehicle. An update to the program is expected to be released in the coming weeks after it hit 1 million miles, Musk said.

Tesla also plans to release a "feature complete" self-driving feature with human supervision under a limited early access release before the end of the year, Musk said. It would bridge the gap between Autopilot's operations at low speed under Smart Summon and high speeds on expressways to drive on roads with street lights and stop signs.

"Feature complete is you can drive from one's house to work most likely without inventions," Musk said. "It would still be supervised, but it will be able to drive on its own."

Musk foresees a "robotaxi" feature under which the vehicle would not need supervision, according to the company, that could launch before the end of next year. He, however, earned regulators may beg to differ.

The company also provided further insight into the revenues from regulatory credits it sells to other automakers that do not sell sufficient numbers of electric vehicles. They accounted for $100 million last quarter, Kirkhorn said.

Tesla in late August also launched an auto insurance offering in California. Few specifics were shared on that, though the company is looking to expand it to other states and countries, Kirkhorn said.

The automaker's operating expenses were $930 million, down 15% from last year. Operating income was $261 million for a 4.1% operating margin.

Tesla reported it has $5.3 billion in cash, up 8%. The company has taken steps to bring its finances in line, cutting 7% of its workforce in January after it cut 9% in June 2018. The cuts resulted in 6,750 workers losing their jobs.

Tesla will show its long-delayed version three of Tesla's solar panel roofing for the first time on Thursday, Musk added.

The results are the first without co-founder and former Chief Technology Officer JB Straubel, who announced his resignation during last quarter's conference call.

bnoble@detroitnews.com

Twitter: @BreanaCNoble