Tesla posts rare profit in third quarter
Tesla Inc. posted a rare quarterly profit, earning $516 million in pre-tax profits in the third quarter of 2018. The results partially cap a dash to ramp up production and increase deliveries that included erecting a makeshift tent to house another production line.
“The third quarter in many ways serves as Elon Musk’s redemption — you may not agree with his approach, but you can’t argue with the numbers," Jeremy Acevedo, an automotive analyst for Edmunds, said in a note. "Achieving profitability is a huge milestone, and one that even the most staunch Tesla skeptics would have to give them a little bit of kudos for.”
In what turned out to be a telling move, the Silicon Valley automaker rushed its third quarter report by roughly two weeks, which analysts saw as a sign the company had good news to share. Tesla stock soared nearly 13 percent on the news Tuesday.
After taxes, Tesla made $311.5 million on $6.8 billion in revenue. The company has never posted an annual profit.
The automaker demonstrated a reversal of its usual cash burn with $881 million in free cash flow at the end of the third quarter. Tesla also reported nearly $3 billion in cash on its balance sheet.
The company is predicting another profit and positive cash flow in the fourth quarter, which would fulfill Musk's previous prediction that the company would reach sustainable profitability beginning in the third quarter of this year. Tesla has never reported an annual profit, though it has previously recorded rare and modest quarterly profits.
“A profitable quarter is a good start, though Tesla has made this start twice before without follow-up, or booking an annual profit," Karl Brauer, an automotive analyst with Cox Automotive, said in a note. "If Model 3 production, and demand, are sustained over the next three quarters, Tesla could enter sustainable financial status for the first time in its 15-year existence."
Tesla delivered a total of 83,500 vehicles in the third quarter, 55,840 of which were Model 3 deliveries. The company said it produced 80,142 vehicles in July, August and September, and 11,725 vehicles were in transit to customers at the end of the quarter.
Of the 455,000 net reservations of the Model 3 Tesla reported in 2017, less than 20 percent have been canceled, even without the release of the previously promised $35,000 model.
Tesla says its China business is challenged by a 40 percent import tariff for Model S and Model X, but a decline in the Asian market was offset by growth in North America and Europe. Tesla has reportedly secured land for a factory in China, which would be its first outside the U.S.
Shares in Tesla climbed as much as 35.5 percent percent in after-hours trading. The automaker's stock closed at $288.50, down nearly 2 percent Wednesday as the S&P 500 lost more than 3 percent, and the Nasdaq slumped more than 4.4 percent, officially entering a correction.
Tesla lost a record $717 million in the second quarter, but had slowed its cash burn. It was a performance that seemed to please investors, aided by Musk's apologies for his dismissal of analyst questions on a first-quarter conference call.
Much of that good will was undone in the following months, when Musk tweeted about possibly taking his electric-car company private, purporting to have "funding secured." An ensuing Securities and Exchange Commission settlement removed Musk from his chairman position.
The third-quarter profit is good news for a company still facing unique manufacturing and delivery woes, as well as such industry-wide challenges as rising costs due to steel tariffs, and the winding down of a federal tax credit intended to encourage EV sales.
“Even though Tesla is finally hitting its stride in many ways, the company isn’t out of the woods yet," Acevedo said. "Despite progress in China, tariffs could continue to create complexity in the company’s international growth plans, and they will have to create a more sustainable solution to its delivery challenges."