Tesla shares soar 21% on surprise quarterly profit news

TESLA Inc surprised investors yesterday with a quarterly profit that sent its shares soaring, as chief executive Elon Musk promised a 2020 rollout of a cheaper SUV and more selfdriving technology to stay ahead of larger rivals rushing into the premium electric vehicle market he created.

Shares rose nearly 21% to $US307.12 ($NZ480) after hours on the unexpected news, crossing $US300 for the first time since March 1 after record deliveries and cost cuts ensured a profitable third quarter.

Tesla yesterday posted a cash balance increase to $US5.3 billion and reported a profit of $US1.86 per share, shattering analyst expectations for a loss of US42 cents per share.

The thirdquarter results are an important milestone for Tesla and redemption for Mr Musk, who had to step down as chairman after a series of scandals and investor doubts about Tesla’s ability to withstand competition from larger, bettercapitalised global rivals.

Tesla’s gross margins, an important profit indicator for investors, surpassed expectations and Tesla said it was ‘‘highly confident’’ in exceeding the low end of its yearly global vehicle delivery goal.

But Tesla has yet to prove that it can be consistently profitable while managing the start of production for Model 3 sedans at its new factory in Shanghai and for Model Y sport utilities next year.

‘‘Given the breakneck speed of expansion, Tesla will face significant demands on its cash pile,’’ Hargreaves Lansdown analyst Nicholas Hyett said.

The company yesterday said production in Shanghai and for Model Y were ahead of schedule, with the latter expected to launch by the summer of 2020.

Tesla also has to contain costs as it develops a gigafactory in Europe, a Semi truck, an electric pickup truck, a new generation of the Tesla Roadster and automated driving features.

The carmaker said it had cut costs 16% on a yearly basis, citing improvements in operating efficiency and a reduction in manufacturing and material costs. Mr Musk said on a conference call that operating costs were the lowest since Model 3 production started.

Margin expectations were higher for Model Y than Model 3, while productions costs were roughly the same as Model 3, Tesla chief financial officer Zach Kirkhorn said.

Model 3 vehicles made in the Shanghai factory would have roughly the same margins as those made in Fremont, California, he said.

Tesla also expects to generally be cashflow positive as it has grown to the point of being selffunding. That will allow the company to invest in divisions focusing on sustainable energy, including launching the third version of its solar roof tile this week.

‘‘For about a year and ahalf we stripped Tesla energy of resources,’’ Mr Musk said.

‘‘Now that Model 3 production is in a good place and headed to a great place we have restored resources to Tesla storage and solar. That’s going to be really crazy growth.’’

Mr Musk also said Tesla was open to supplying batteries and other components to other automakers.

With yesterday’s afterhours surge, Tesla’s stock has reduced its loss year to date to 8% and added about $US9 billion to its market capitalisation.

But Tesla rallies have been shortlived before.

A year ago, Tesla gave a quarterly report that similarly smashed investors’ expectations, igniting a rally that sent its shares 31% higher over the next two months, only to see the stock decline through much of this year over worries about corporate governance, profitability and demand for the Model 3.

Investors in the past have shown impatience with the company’s serial failures to meet financial and production targets. Earlier this month, Tesla shares slumped after the company reported delivering 97,000 vehicles for the third quarter, only 2% ahead of the previous quarter.

But Tesla yesterday exceeded promises by Mr Musk, who in July said Tesla would break even in the third quarter and turn a profit by the end of this year.

The company has said it plans to deliver 360,000 to 400,000 vehicles this year, and yesterday said it was ‘‘highly confident in exceeding 360,000 deliveries this year’’. — Reuters