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Tesla Reports Third-Quarter Profit That Beats Market Expectations (cnbc.com)
Rei writes: When Tesla announced late last year that it was targeting sustained profitability in the second half of 2018, reaffirming this target throughout the year, the markets reacted with skepticism. Indeed, despite repeated insistence that the company had no need for a capital round, news analysts have treated the concept of Tesla dilution to raise more capital as inevitable and urgent to pay off convertible bonds next spring, even suggesting insidious theories that the reason it hadn't was that it "couldn't."
Well, today Tesla put the doubts to rest with a blockbuster Q3 report -- not simply eking out a profit and small free cash flow growth, but $2.92 per-share profit and $881 million free cash flow -- almost raising the entire value of their convertible bond debt in a single quarter. While many were skeptical about Tesla's claims that it would go from near zero profit margin on Model 3s to their claimed target of 15%, Tesla instead hit a 20% margin on the Model 3 (now the highest-revenue car in the U.S.), with a 25.8% overall automotive gross margin. This was all achieved with only $52 million worth of zero-emission vehicle credits claimed this quarter. While Tesla bears will likely claim that this quarter was a one-off that won't be repeated, Tesla reiterates guidance for sustained profitability from herein, barring a force majeure event.
Well, today Tesla put the doubts to rest with a blockbuster Q3 report -- not simply eking out a profit and small free cash flow growth, but $2.92 per-share profit and $881 million free cash flow -- almost raising the entire value of their convertible bond debt in a single quarter. While many were skeptical about Tesla's claims that it would go from near zero profit margin on Model 3s to their claimed target of 15%, Tesla instead hit a 20% margin on the Model 3 (now the highest-revenue car in the U.S.), with a 25.8% overall automotive gross margin. This was all achieved with only $52 million worth of zero-emission vehicle credits claimed this quarter. While Tesla bears will likely claim that this quarter was a one-off that won't be repeated, Tesla reiterates guidance for sustained profitability from herein, barring a force majeure event.
I am a big Tesla fan. But we should acknowledge that there are still some problems. Mainly that the spare-parts supply chain hasn't caught up with manufacturing, leaving cars inoperable for months while Tesla's own shops wait for parts. If you want right-to-repair, Tesla hasn't caught up to that by making diagnostic tools available or parts available to non-partner shops and end-users.
Bruce Perens.
Or, ignore inventory changes and do the math. Multiply 2 1/2 thousand vehicles times a reasonable Q2 ASP - say, $55k. That's $137,5M. Compare that to the free cash flow ($881M) and profit (GAAP: $312M; non-GAAP: $516M). Notice anything?
"What is the difference between a Ponzi Scheme and an Investment Bank?" -- Jon Stewart
Elon also said "I begged the other companies to invest in battery capacity and charging networks" according to some live blogging site. And some thing along the lines of if they make an adapter he will let them use Tesla super chargers. Not sure if he really said that or these guys are putting words in his mouth.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
The bears have to make a hard choice. They were hoping a cash crunch of debt payment in Q4 2018 and Q1 2019 of about 1.5 billion will choke the company. It was already burning through cash at some prodigal rate in Q1 and Q2. They seem to have miscalculated. Last reports from S3 Partners was that there was some 32 million shares outstanding. Wondering how many covered when the price crashed to 250 and got out with some profits. How many are still holding out waiting for Tesla to go bankrupt.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
I'm waiting to hear how Tesla is losing money on each car it sells, such as some people have been saying around here (FALSELY) for months. If they lose money on each car they sell, how did they wildly beat all the analysts by selling more of them?
When everyone is telling you that you are wrong, sometimes it's a good idea to gain a little objectivity and at least examine the possibility that you actually are wrong.
Tesla had its best quarter in a while. Hopefully, it can continue to execute in manufacturing cars and meet future debt payments. It's not out of the wood yet, but the direction looks good. A strong, successful Tesla will be good for consumers, the car market, and even for other car companies.
However, since it's Tesla and Musk, the report stretches facts somewhat. "Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume." Well, that's technically true, if you exclude the top-6(!) selling vehicles in the US. That is, if you exclude the 65-70% of the car market represented by trucks and SUVs, which are technically not cars, then the Model 3 is the top revenue seller. But, that doesn't sound as impressive, even though it actually is.
Fuck the cars, high end electric vehicles are a limited market. The big Tesla market, something the hedge fund shorts absolutely do not want to discuss, the home electric power systems, panels, batteries and control gear a far bigger market, probably something like 100 times the size of the vehicle market, each unit worth similar to a low end car and far more profitable, with numbers in the hundreds of millions. Yeah, keep talking Tesla vehicles and ignore the bigger market and the one far more damaging to the fossil fuellers.
Tesla home power systems, cut your house from the grid, invest in a higher return than bank interest, far higher and fuel your Tesla vehicle from home. Corrupt hedge funders who did the shorts are quaking because that home energy market is about to take off, no matter how much they bribed lobbyists to bring their pet SEC agents onto the scene.
Chaos - everything, everywhere, everywhen
Q2 Automotive gross margin increased to 20.6% GAAP and 21.0% non-GAAP. Thats their profit margin.
Gross margin is NOT profit margin. Those are different things and you need to understand the difference. Gross margin does not consider sales, administration, interest, taxes, and other overhead like engineering etc. Gross margin is just revenue minus cost of goods sold which is just direct costs of materials and labor. Gross margin is NOT profit and should not be confused with profit. You can easily have a 20% gross margin but a negative profit margin and if that remains the case long enough the company will eventually go bankrupt. Software companies often have gross margins in the 60-80% range because cost of production is very tiny - most of their costs are in engineering, sales and marketing. Manufacturing companies usually have gross margins in the 15-40% range depending on the product being made but that does not mean they are profitable.
Also, FYI, you book revenue when you ship, not produce. So having 13k vehicles in inventory is a drag on their balance sheet, not a boost.
How revenue is booked is unfortunately FAR more complicated and to a significant degree is an arbitrary decision. It's perfectly legitimate to book a sale when you sign a contract but before the product is delivered. Many companies do this. Other companies book the sale when the product is sent to a distributor (like an auto dealer) but not actually sold to the end customer. Other companies only book a sale when the end customer has received the product. You can even book a sale when cash is received for the product. All of these approaches are perfectly valid under GAAP. From what I understand Tesla somewhat conservatively books sales only when the customer takes delivery of the car. This is unusual in the industry. Most of the big auto makers book "sales" when the ship a car to a dealer even if it hasn't actually been sold to an end customer. They are treating the dealer as the customer of the product.
How many people can actually afford these vehicles when insurance and the like is added in?
So, my performance M3 was 1.6 times as expensive as my Subaru STi, and yet the insurance was almost exactly the same price. I actually asked them to double check in case they had made a mistake. They hadn't. Not sure whether it's the safety rating, or that it's not a boy racer car like the STi, but insurance doesn't seem to be a problem for most of the people I've talked with...