Tesla takes markets by surprise, posts Q3 profit

Tesla reported an unexpected profit for the third-quarter, with its share price soaring 20% on the news.

Michael LIedtke reported the news for the AP:

Tesla posted a surprising profit of $143 million in its latest quarter, raising hopes the electric car pioneer may finally be turning the corner after posting mostly losses during its first decade as a publicly held company.

The positive results announced Wednesday came after Tesla lost $1.1 billion during the first half of the year. That had caused many investors to lose faith in the company even as it boosted sales of its vehicles.

Doubts about Tesla led its stock to fall by 23% so far this year, while the bellwether Standard & Poor’s 500 index has climbed 20%. But Tesla’s shares recovered a big chunk of those losses after its third-quarter numbers came out, soaring 20% to $306 in extended trading.

The rally stemmed largely from investors’ surprise given the widespread expectation on Wall Street that Tesla would register yet another significant loss for the July-September period. Analysts surveyed by FactSet had projected Tesla would lose about $253 million during the third quarter.

Instead, Tesla delivered a “jaw dropper,” said Wedbush Securities analyst Daniel Ives. “The Street wanted profitability and Tesla delivered in big fashion.”

CNN’s Jackie Wattles noted this was Tesla’s third quarter of profits since its incenption:

It marked the first quarter Tesla was profitable since the company posted back-to-back profits in the second half of 2018. Before that, Tesla had posted profits only twice since it went public in 2010 — once in 2013 and again in 2016.

Much like the third quarter of 2018, last quarter’s earnings came when analysts were expecting another batch of losses. Also like last year, Tesla CEO Elon Musk had said months before the profit posted that the company would be out of the red, but analysts were skeptical.

Tesla struggled last year to ramp up production of the Model 3 sedan, the company’s first car designed more for the mass market with price points starting around $40,000. Manufacturing issues at the company’s California factory appeared to be ironed out by the end of 2018.

This year, Tesla has worked to expand sales abroad and has spent big bucks on a manufacturing plant in China in the hopes of accessing its billions of consumers.

“We have also dramatically improved the pace of execution and capital efficiency of new production lines,” Tesla said in a letter to shareholders Wednesday. “Gigafactory Shanghai was built in 10 months and is ready for production, while it was [about] 65% less expensive to build than our Model 3 production system in the US.”

Reuters’ Tina Bellon and Akanksha Rana cited an analyst as saying:

“Given the breakneck speed of expansion, Tesla will face significant demands on its cash pile,” said Nicholas Hyett, an analyst at Hargreaves Lansdown.

The company on Wednesday said production in Shanghai and for Model Y are ahead of schedule, with the latter expected to launch by the summer of 2020.

Tesla also has to contain costs as it develops a gigafactory in Europe, a Semi truck, an electric pickup truck, a new generation of the Tesla Roadster and automated driving features.

The carmaker said it had cut costs 16% on a yearly basis, citing improvements in operating efficiency and a reduction in manufacturing and material costs. Musk said on a conference call that operating costs were the lowest since Model 3 production started.

Margin expectations are higher for Model Y than Model 3, while productions costs are roughly the same as Model 3, said Zach Kirkhorn, Tesla chief financial officer.

Model 3 vehicles made in the Shanghai factory will have roughly the same margins as those made in Fremont, California, he said.

Tesla also expects to generally be cash flow positive as it has grown to the point of being self-funding.