Just as Tesla Motors CEO Elon Musk promised at the start of this year, third-quarter financials released moments ago for the California company show that it has managed to turn the ever-increasing losses of the past three years around, finishing September with a net profit of $21.878 million, equivalent to $0.14 per diluted share.
In addition to beating Wall Street predictions — which had predicted a revenue of $2.43 billion and a net gain of $0.02 per share — Tesla’s better-than-expected quarterly results has caused TSLA stock to rise in after-hours trading more than 5.5 percent, peaking at $214.83 per share after closing the day at $202.24.
The quarterly report also shows record vehicle production and delivery figures for Tesla, something which helped set new revenue records for the firm too. And hot on the heels of Tesla’s announcement last week that all new Tesla electric cars rolling off its Fremont production line would include Autopilot 2.0 hardware as standard, Tesla says it plans to finish the year on a very strong note, with cell production due to start at its Gigafactory before year’s end as well as hopeful completion of its planned acquisition of SolarCity.
As always, the following report has been written using information provided by Tesla in its official Q1 2016 Shareholders Letter, which you can read on Tesla’s shareholder site, as well as information divulged during Tesla’s Q2 2016 earnings call.
Demand continuing to rise
Despite ending its guaranteed resale value program in the U.S., Tesla says demand for Model S and Model X vehicles was 68 percent higher than Q3 last year, resulting in a total of 24,821 Tesla electric cars being delivered during the quarter. Of those, the lion’s share (16,047) were of Tesla Model S sedans of various trim levels and battery pack sizes. Despite initial production and quality control issues for the first half of the year, higher quality control and improved production techniques meant that Tesla was also able to ship 8,774 Model X cars during the quarter, its best yet.
An additional 5,065 cars were listed as being ‘in transit’ at the quarter’s end, meaning those vehicles will be counted in Tesla’s Q4 earnings report.
Production records set
That record delivery target during Q3 is of course only possible thanks to what has been the highest-volume quarter for Tesla’s Fremont facility, with a total of 25,185 vehicles rolling off the production line, with Model S outnumbering Model X in terms production volume.
These figures should pale into insignificance next year when Tesla says it will begin volume production of its highly-anticipated Model 3 electric car, a car which it hopes to produce in volumes measured in not the tens of thousands but hundreds of thousands per year.
With that in mind, the company said it has now completed its layout planning for Model 3 production machinery at its Fremont facility and will begin purchasing and installing the necessary production equipment in the near future.
Growth in all areas
While it’s easy to still think of Tesla as an automaker, Tesla’s Q3 earnings report reminds us that it does far more than make electric cars. In addition to the vehicles themselves, Tesla has continued to expand its sales and service network over the past quarter, as well as expanding its Supercharger and Destination charger network during the same period.
With 715 Supercharger locations around the world hosting a total of 4,461 Supercharger stalls, Tesla says that 97 percent of the population of the continental U.S. and 86 percent of western Europe are now within 150 miles of a Supercharger station, meaning that virtually all Tesla customers wherever they are in the U.S. or western Europe can now make long-distance trips with their Tesla Model S or Tesla Model X without needing to spend hours waiting at a lower-power charging station.
The Tesla Energy storage products also experienced impressive growth within the quarter, with Tesla installing a 20 megawatt, 80 megawatt-hour Powerpack system at the Southern California Edison Mira Loma substation to help prevent “rolling blackouts.” When it is completed, Tesla says it will be the largest lithium-ion battery storage project in the world and will hold enough power to provide 2,500 homes with power for a day.
Debts reduced, but challenges still lie ahead
In keeping with its standard practice of paying off debts as soon as financially possible, Tesla used some of its income from Q3 to pay off $178 million in debts as well as convert $422 million worth of 2018 convertible notes into cash. This was made possible by its high sales income and improved cash-flow management. Big challenges ahead
Despite turning a profit in Q3 however, Tesla does still have a lot of challenges facing it in the future. Aside from the continued financial burden placed on it by Tesla Model 3 research and development, development of the next-generation software for its recently announced Autopilot V 2.0 won’t come cheap. Additionally, with the upcoming expected merger between it and SolarCity, Tesla could find itself spread particularly thinly next quarter.
Tesla’s profitable Q3 is great news for both Tesla itself and its shareholders. Now the challenge is to ensure that it continues to deliver over the long term, something that will require continued growth and continued dominance in the electric car market.
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