Tesla’s surprise prof it sends shares surging
Analysts expected more red ink, but Elon Musk’s cost-cutting and Smart Summon prove them wrong.
Most analysts expected more red ink, but cost-cutting and Smart Summon prove them wrong.
Tesla Inc.’s stock price surged in late trading after the electric-car maker reined in expenses and posted its first profit in almost a year — a shock almost no one saw coming.
The Model 3 sedan maker earned $1.86 a share in the third quarter, beating analysts’ average estimate of a 24-cent loss. Chief Executive Elon Musk has announced at least three rounds of job cuts since last year and restructured business units to counter slowing sales of higher-margin models.
“Operating expenses are at the lowest level since Model 3 production started,” Tesla said in a statement. “As a result, we returned to GAAP profitability in Q3 while generating positive free cash flow. This was possible by removing substantial cost from our business.”
Tesla shares climbed as much as 20% to $306 in afterhours trading. They were down 23% this year through Wednesday’s close.
Musk, who’s notorious for setting ambitious timelines and falling behind schedule, said Tesla is proceeding faster than expected with the start of Model 3 production at the factory it began building early this year on the outskirts of Shanghai. Trial output is underway.
The company is also ahead of schedule with Model Y, the small crossover that will share underpinnings with Model 3. Production will start next summer, rather than the fall, according to the company.
Revenue fell to $6.3 billion in the third quarter, missing analysts’ estimates and down from $6.8 billion a year earlier. The drop is the first year-over-year decline for the company since 2012, when the Model S sedan was just going into production.
Operating earnings improved to $261 million, compared with a $167-million operating loss in the previous quarter. Tesla’s net income was helped in part by recognizing deferred revenue based on Musk making a controversial addition to its suite of drive-assistance features. Smart Summon, which allows Tesla owners to tap their smartphone and remotely call for their car to pick them up, was rolled out to customers through an over-the-air software update days before the end of the quarter.
Musk has been charging customers for performance features that Tesla vehicles aren’t actually capable of yet. At the end of June, the company said it expected to recognize $567 million of deferred revenue in the following 12 months.
It’s now anticipating the release of almost $500 million tied to the rollout of Autopilot and Full Self Driving features, according to the statement, which doesn’t give a time frame.
Tesla’s gross margin in the third quarter was 22.8%, down from a year earlier but a 3.9-percentage-point improvement from the second quarter.
“The stock is popping because of gross margin, which is impacted by the Full Self Driving features,” said Ross Gerber, president of fund manager Gerber Kawasaki, which holds Tesla shares. “By releasing Smart Summon on the last weekend of the quarter, Musk was able to realize some of that deferred revenue.”
Hull writes for Bloomberg.