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Record sales drive Tesla to surprise profit

Tesla Motors posted a surprise $US22 million ($28.8m) profit in its latest period.

Tesla’s second profit was helped by improved sales of the Model S and Model X vehicles, a reduction in spending and sales of pollution tax credits.
Tesla’s second profit was helped by improved sales of the Model S and Model X vehicles, a reduction in spending and sales of pollution tax credits.

Tesla Motors posted a surprise $US22 million ($28.8m) profit in its latest period, buoyed by record sales of its electric cars and boosting chief executive Elon Musk’s plan to lift output ahead of its release of a sedan to compete against mass-market rivals.

The Californian company reported its first profit after 12 quarterly losses amid a push to generate cash for building its $US35,000 Model 3. The company has pledged to lift annual production to 500,000 cars in 2018, from about 50,000 last year.

The quarter’s profit — a record and only Tesla’s second profit ever — was driven by improved sales of the Model S sedan and Model X sport-utility vehicle, a reduction in spending and a boost from selling pollution tax credits to other carmakers. Gross profit from the credits soared to $US139m from $US39m a year ago — way above UBS analyst Colin Langan’s estimate for $US30m during the quarter.

“One of the criticisms I’ve seen out there is that perhaps Q3 was at the expense of Q4 — this is not true,” Mr Musk told analysts. “We are headed to have a great fourth quarter.”

Revenue soared to $US2.3bn from $US936.8m a year earlier. Tesla delivered 24,821 of its Model S and Model X vehicles combined, more than twice the previous year’s figure.

Its shares were up 5 per cent at $US212.05.

Tesla said it generated free cash flow, repaid $US600m in debt and finished September with $US3.1bn in cash, a decline of $US162m from the end of June.

The carmaker needs about $US2.5bn through the end of 2017 for the Model 3 rollout and the completion of a huge battery factory in Nevada, according to Brian Johnson, an automotive analyst at Barclays.

The improved results also could help Mr Musk make the case that he can handle merging Tesla with SolarCity Corp, which could require additional cash. The combined companies ultimately may need to raise $US12.5bn for spending through 2018, according to Oppenheimer & Co. Tesla and SolarCity shareholders are scheduled to vote on a merger on November 17.

Mr Musk reiterated that Tesla didn’t need to raise money this year, adding that the plan to bring out the Model 3 did not include doing so. But he left the door open, noting that the modest war chest could get “a little scary in terms of how much capital we have in the bank relative to our sales volume”.

“There could be unexpected negative things that occur; there could be some global, macroeconomic slowdown … who knows what could happen,” Mr Musk said.

Sales were likely helped by a new $US66,000 version of the Model S, analysts said. The September quarter was the first full quarter in which Tesla offered the vehicle.

Tesla also lowered its forecast for capital spending this year to $US1.8bn from $US2.25bn. About $US1bn of that spending could occur in the fourth quarter, it said.

Read related topics:Elon Musk

Original URL: https://www.theaustralian.com.au/business/the-wall-street-journal/record-sales-drive-tesla-to-surprise-profit/news-story/66134f541103e623622e40682253c6e7