Tesla surprises Wall Street with $312m Q3 profit and record revenue
Tesla posted a $312 million profit and $6.8 billion in revenue for Q3 2018, driven by strong Model 3 margins and higher-than-expected deliveries.
Tesla delivered a rare quarterly profit for the third quarter of 2018, reporting $312 million in net income and record revenue of $6.8 billion. The figures, released after US markets closed on 24 October, were well ahead of analyst forecasts and marked a turnaround for the electric carmaker after several loss-making quarters.
Wall Street had expected Tesla to post revenue of around $5.67 billion and a loss of $0.53 per share. Instead, the company achieved a profit of $1.75 per share, helped by higher-than-forecast Model 3 deliveries and margins. Tesla said both GAAP and non-GAAP gross margins for the Model 3 exceeded 20% in the quarter, with labour hours per vehicle dropping by more than 30% compared to the previous quarter.
The result pushed Tesla shares up 10% in after-hours trading, as investors reacted to the company’s first meaningful profit since 2016. Tesla’s improved cash flow was another key point, with its cash position growing by $731 million to $2.9 billion at the end of the quarter. This was achieved despite only $52 million in revenue from regulatory credits, meaning Tesla would have been profitable on its core business alone.
Model 3 production drives turnaround
The Model 3 was central to the quarter’s performance. Tesla reported that the car became the best-selling vehicle in the US by revenue during the period. The company attributed its improved profitability to a combination of higher Model 3 volumes, better manufacturing efficiency and reduced labour costs per car. Labour hours per Model 3 fell by more than 30% from the previous quarter, helping to lift margins above the 20% mark.
Tesla said it plans to further localise Model 3 production, with some manufacturing operations set to begin in China as early as 2019. The company also confirmed that the Model Y prototype had been approved for production, targeting a launch in 2020.
Energy business and cash position
Beyond automotive, Tesla’s energy storage and solar businesses also showed growth. In Q3, energy storage deployments reached 239 MWh and solar installations totalled 93 MW. While automotive remains the main driver, the energy segment contributed to the improved revenue base.
Despite the profit, Tesla still carries a significant debt load. The company stated it intends to repay parts of this debt in the current quarter, supported by its strengthened cash position. As of the end of Q3 2018, Tesla reported $2.9 billion in cash and cash equivalents.
Market reaction and outlook
The stronger-than-expected results prompted a sharp rise in Tesla’s share price, as investors reassessed the company’s prospects. The Q3 performance contrasts with earlier quarters in which Tesla posted losses as it ramped up Model 3 production. With the Model 3 now contributing solid margins and the energy business expanding, Tesla’s management signalled confidence in maintaining positive cash flow and profitability in the near term.
Tesla’s Q3 2018 profit stands in contrast to the company’s earlier financial performance, when losses were common as it invested heavily in production and new models. The latest results suggest the company’s strategy to scale Model 3 production and improve operational efficiency is beginning to pay off.
