Tesla profit fears ease

A surprise profit may calm Tesla investors worried that Elon Musk’s pursuit of growth will hurt its bottom line.

“Great strides in controlling our costs.” Tesla boss Elon Musk. Picture: AFP

Tesla posted a surprise profit for the third quarter, easing investor fears that the electric car maker’s pursuit of growth and record production figures would come at the expense of the bottom line.

The company said it would continue to be profitable, but cautioned that new products could affect its margins.

Tesla’s shares climbed 20 per cent in after-hours trading.

“We were able to make great strides in controlling our costs,” chief executive Elon Musk said in a call with analysts. “Our operating cost is now the lowest level since Model 3 production started.”

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The company said trial production of its compact Model 3 car has started at a new facility in China, and production on its new Model Y compact sport-utility vehicle is ahead of schedule, with a launch set for next summer. The China facility is another sign of Tesla’s ambition to become a global force in car production.

Tesla posted earnings of 78 cents a share for the three months ended September 30, up-ending analysts’ predictions for a loss of 46 cents a share. For the year-earlier quarter, the company reported earnings of $1.75 a share.

A record delivery figure helped lift Tesla’s bottom line, as customers largely flocked to the lower-price Model 3.

But even as Tesla ramps up Model 3 production, sales of its premium cars have declined.

Third-quarter revenue fell to $US6.3 billion from $US6.82 billion a year earlier, as deliveries of the Model S and Model X vehicles dropped 37 per cent.

Analysts polled by FactSet had predicted revenue of $US6.43 billion.

The company said it is on track to deliver more than 360,000 vehicles in 2019, the lower end of its targeted range of 360,000 to 400,000.

Tesla has had back-to-back quarters of record vehicle deliveries this year after failing to meet estimates earlier in 2019. The company needs to deliver at least 104,800 vehicles in the three months through December 31 to meet the lower end of the projected range.

Tesla has made significant gains in its yearly production -- a crucial part of Mr Musk’s strategy to become a mass-market automaker. The lower end of the projected range compares with deliveries last year of almost 250,000 cars.

But even as Tesla gets closer to showing it can consistently produce large volumes of cars, it faces the prospect that market dynamics might be shifting as demand slows. Tesla faces the elimination next year of a federal tax credit to its customers, a change that analysts say could affect demand.

What’s more, industry experts fear overall demand for new vehicles might be about to slump after a prolonged growth period. Demand in China and Europe already is showing signs of weakness and the appetite for new vehicles in the US could be in jeopardy, analysts have said.

New vehicles often help generate sales interest among reluctant vehicle buyers. Tesla said it would produce limited volumes next year of an all-electric semi truck the company unveiled in 2017 and is starting to install equipment for the Model Y. The car maker also said it would announce the location of a new factory in Europe by the end of the year.

A Tesla showroom in Amsterdam. Picture: AFP

Tesla, which initially rolled out the luxury Model S large sedan and Model X SUV, has shifted its focus to the Model 3. That smaller car accounted for about 82 per cent of the 97,000 deliveries the company made in the third quarter.

Tesla has said it wants the Model 3 to be a mass-market car and has priced the vehicles accordingly. They cost less than half the price of the premium models.

The starting price of the Model 3, which Tesla has been working to bring down to $35,000 by shedding jobs and closing facilities, is currently listed at roughly $39,000 on the company’s website, excluding projected savings from gasoline and tax credits.

Despite price reductions, Tesla said its gross margins improved through cuts to manufacturing and material-related costs.

Operating expenses decreased 16 per cent from the year before to $US930 million. Zach Kirkhorn, Tesla’s chief financial officer, noted that the company reduced costs by stabilising hours spent by workers on vehicle production, as well as in its logistics, warehouse and delivery operations.

Sales of the Model 3 boosted Tesla’s free cash flow, a metric considered important for the company’s health because it supports operations and helps the company maintain its assets.

Tesla recorded $US371 million in cash flow for the third quarter, compared with $US614 million for the three months ended June 30. The car maker’s cash reserves totalled $US5.3 billion

The opening of Tesla’s China facility comes as car sales in the country, the world’s largest auto market, have slumped.

A slowing Chinese economy has pinched sales for major car makers, including in the electric-vehicle market, where sales fell 11 per cent in the third quarter.

Wall Street Journal