Though there were many obstacles thrown in Tesla’s way, including the SEC settlement, libel lawsuit, and Elon Musk’s pot-smoking podcast with Joe Rogan, the electric-car maker managed to report a net income in the three-month period of $311.5 million on $6.1 billion of automotive revenue. Further meaning, it fulfilled Musk’s promise that the company would move into the black and production of Model 3 sedans would pick up speed.
“We reaffirm our prior guidance that we expect to again achieve positive GAAP net income in Q4,” Musk and Ahuja said in a letter to shareholders. “As we have transformed from a 100,000 per year unit carmaker into a ~340,000 unit per year carmaker, our earnings profile has flipped dramatically. Sufficient Model 3 profitability was critical to make our business sustainable – something many argued would be impossible to achieve.”
Tesla actually bumped its reporting date by nearly two weeks, Forbes reports, while many observers believed it meant the company had good news, or that it didn’t want to be buried under the coverage of U.S. midterm elections. In addition to the net income, Tesla also reported $881 million of free cash flow in the quarter. With the results being better than expected, Tesla shares increased in after-hours trading as much as 12 percent to $324.50.
Musk and several Tesla executives and engineers discussed further topics as well, including crash-test engineering, more updates for Tesla vehicles and steps to improve factory and worker safety. Among these topics includes large advances in its AutoPilot driving-assist system, in which Tesla calls “full self-driving” capability.
The quarterly profit and higher cash generation advised Musk that Tesla can establish sustainable profits, without needing to constantly raise additional funds to pay towards debt and fund capital expansion. However, Musk was already ahead of that.
“That is our goal,” he said on the conference call. “We do not intend to raise equity or debt, at least that is not our intention right now. That may change in the future. But the current operating plan is to pay off our debts, not to refinance them but to pay them off, and reduce the debt load and overall leverage of the company.”
Musk added that by reducing the time it takes for a Tesla to leave to factory and reach the customer, the more debt will be reduced faster, since the company doesn’t receive payment until its delivered. According to Musk, in August it took nearly 30 days to get the cars to customers, but by the end of the third quarter, it took an average of 20 days. “Our goal in Q4—this is a goal, not a promise—is to get the average time of a car from factory to customer in under 10 days,” Musk told analysts. “This is a giant improvement in the capital efficiency of the company.” By the end of his goal, he desires to cut delivery time to less than one week.
Though he mentioned his average time goal is under ten days, he emphasized it was a goal and not a promise, unlike the one he made on its Model 3 car. During the same call, Musk stated the $35,000 Model 3 might be available in about six months.
“It’s not like we’re holding back this lower-cost version of the car intentionally. We really care about providing customers with the most affordable car we can possibly produce, and if we could do the smaller pack now we absolutely would,” he said.
“Customers will probably see the smaller battery pack (version) on the order of like March or something, February maybe. Something on that order,” Musk continued.
Auto Data site Edmunds noted Tesla is by far the biggest electric vehicle maker in the U.S. market, accounting for 76% of pure EV sales in the first three quarters of 2018. However, by the end of quarter three, Model 3 ranked fifth in car sales in the U.S. and 18thbest-selling vehicle overall.
“Even though Tesla is finally hitting its stride in many ways, the company isn’t out of the woods yet,” Jeremy Acevedo, Edmunds‘ manager of industry analysis said in emailed comments.
“Despite progress in China, tariffs could continue to create complexity in the company’s international growth plans, and they will have to create a more sustainable solution to its delivery challenges. The $35,000 Model 3 remains a fantasy, and with the full tax credit for that car now off the table, it will be interesting to see how many buyers are willing to keep waiting for it to be a reality.”