Tesla Posts Surprising Profit

Tesla Inc. reported a record quarterly profit as increased output of its Model 3 sedan ended a seven-quarter stretch of red ink for the electric-car maker, defying Wall Street expectations and giving embattled Chief Executive Elon Musk renewed credibility.

The performance, which followed a series of production delays and missteps by Mr. Musk that have roiled Tesla and its stock, delivered on Mr. Musk’s promise that higher Model 3 production would lead to profit during the third quarter. The CEO in a letter to shareholders on Wednesday affirmed that pledge for the current period. Mr. Musk also said Tesla is accelerating its manufacturing plants in China, where it now aims to bring parts of Model 3 production next year to serve the local market.

Tesla gave investors hope that its production rates will improve, saying that the number of labor hours to build the Model 3 fell by more than 30 percent from the second to the third quarter, and it took less time to build than the Model S sedan and Model X sport utility vehicle — another first for the company.
The electric car maker has been struggling to ramp up production of its Model 3 sedan, telling investors Oct. 2 that it made 53,239 of the vehicles during the quarter. That fell just shy of its goal of producing an average of 5,000 a week, but the company said it built more than 5,300 during the last week of the quarter.

“We will focus even further on cost improvements while continuing to increase our production rate” during the fourth quarter, the company said. Strong demand for the Model 3 also bolstered the results. Musk told analysts on a call that demand for Model 3s was “probably on the order of anywhere from 500,000 to 1 million cars a year.”
The company said customers were trading in cheaper vehicles to buy a Model 3, “even though there is not yet a leasing option.” “This leads us to believe that the total market potential for Model 3 is larger than just the premium sedan,” the company said.

 

Todd “Bubba” Horwitz