Elon Musk delivers on promise, Tesla’s earning beat analyst’s estimate

With wider margins, a rise in net profits, and a positive cash flow, Elon Musk has delivered on his promise. Here’s the low down on how Tesla’s Chief Financial Officer Deepak Ahuja and Musk managed Tesla’s operations in a capital efficient manner.

 

In a significant development, Tesla’s Chief Executive Elon Musk delivered on his promise to turn the electric carmaker profitable. Tesla reported a net profit, a positive cash flow as well as wider-than-expected margins for the latest quarter. Elon Musk’s strategy of higher production volumes of the new Model 3 has certainly paid off.

“We can actually be cash flow positive and profitable in all quarters going forward,” said Musk, qualifying that he excluded those in which a big debt payment comes due, such as the first quarter of 2019.

Musk has reiterated that Tesla does not currently plan on raising capital through equity or debt.

Tesla stated it will begin taking orders for the new Model 3 in Europe and China by the end of 2018. with deliveries expected to be in February or March.

Musk stated, Tesla plans on beginning local production in China in 2019 in a ‘capital efficient manner’. This suggests that Tesla could use a tent structure model for car assembly that it has used at its Fremont plant in California.

Tesla has reported a free cash flow of $881 million on the back of a surge in new productions of the Model 3, more efficient use of working capital as well as lower capital expenditures.

Although Tesla’s production target is still below the target it set in June 2018 of 5,000 Model 3s per week, its current production levels of 4,300 Model 3s was sufficient to boost its quarterly results.

Despite pledges by Tesla’s Chief Financial Officer Deepak Ahuja and by Musk to manage operations and future projects in a capital efficient manner, Wall Street analysts opine and foresee that Tesla is likely to raise more capital in the near future.

“(Raising cash) became a whole lot easier,” said Ivan Fienseth, an analyst at Tigress Financial Partners after Tesla’s latest results. “He will need to do it, right? But if you got a profitable company it’s whole lot easier to raise money.”

Focus on production

Earlier this month, Tesla had stated it had produced 53,239 Model 3 sedans in the quarter, which is in line with its target of producing 50,000 to 55,000 vehicles; it also said, it had delivered 56,065 cars to customers.

Investors have placed intense pressure on Musk to prove that he can can deliver consistent production numbers for the Model 3, which is seen as a litmus test for Tesla’s ability to produce cars at high volumes.

Significantly, Tesla reported that higher sales of the pricier versions of the Model 3, currently on offer, had supported its margins, which rose to over 20% in the quarter, up from its projected 15%. Lower labor hours per vehicle along with lower material costs also helped.

According to data from Refinitiv, Tesla’s revenues have more than doubled to $6.82 billion, beating analysts’ average estimate of $6.33 billion. Tesla ended the quarter with $3.5 billion in cash after spending $510.3 million in quarterly capital expenses. Tesla has stated, it sees its cash levels remain unchanged in the fourth quarter, despite a repayment of $230 million in convertible notes that will be due.

Tesla reported a profit of $311.5 million, or $1.75 per share, for the third quarter ended September 30 2018, compared with a loss of $619.4 million, or $3.70 per share, in September 30, 2017.

Excluding items, earnings were $2.90 per share, versus an average analyst estimate of a loss of 19 cents per share.

For the future, Tesla has 3 new vehicles under development: the Model Y, a new $200,000 Roadster and an electric heavy-duty truck that Musk unveiled in November 2018.

Further, its Gigafactory battery factory outside Reno, Nevada is only partially complete; big ticket on the horizon include assembly plants in Europe and China.

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