Automotive

Tesla turns another profit, but 2019 brings new challenges

Tesla turns another profit, bu...
Tesla faces pressure to produce its long-promised Model 3
Tesla faces pressure to produce its long-promised Model 3
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Tesla has rounded out a rather eventful 2018 with another profit, its second in as many quarters
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Tesla has rounded out a rather eventful 2018 with another profit, its second in as many quarters
Tesla plans to produce the Model 3 at maximum rates throughout 2019
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Tesla plans to produce the Model 3 at maximum rates throughout 2019
Tesla faces pressure to produce its long-promised Model 3
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Tesla faces pressure to produce its long-promised Model 3
Tesla's Model 3 became the best selling luxury vehicle in the US in 2018
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Tesla's Model 3 became the best selling luxury vehicle in the US in 2018

Tesla has rounded out a rather eventful 2018 with another profit, its second in as many quarters, with revenue almost doubling year-on-year. But it's not all sunshine and rainbows heading into 2019, as the electric carmaker prepares to pay off considerable debts while funding big expansions into China and beyond.

"Last year was the most pivotal year in Tesla's history," begins a letter to shareholders from CEO Elon Musk and CFO Deepak Ahuja. The letter may just be the last from its financial chief, with Musk stating during yesterday's earnings call that Ahuja is set to leave the company, a revelation that helped send Tesla share prices tumbling in the following hours.

The fact that the company's fourth quarter profit of US$139 million was lower than analysts had expected may have also fed into this, though Musk had forecast this in an open letter to Tesla employees in January. It followed a third quarter profit of $312 million, marking the first time the company has recorded back-to-back profits in its 15-year existence.

The company also reported a record revenue of US$7.2 billion for the quarter and $21.5 billion for the 2018 year, up from $11.8 billion in 2017. This cashflow will come in handy in the coming weeks, as the company prepares to pay off $920 million in bonds due by March 1.

"We have sufficient cash on hand to comfortably settle in cash our convertible bond that will mature in March 2019," the company notes.

Whether these figures translate to sustainable profitability is a question clouded by uncertainty. The company finds itself in a tug of war of sorts, with pressure mounting to produce its long-promised $35,000 Model 3, but also needing to produce cars with far greater profit margins in order to stay afloat.

Tesla plans to produce the Model 3 at maximum rates throughout 2019
Tesla plans to produce the Model 3 at maximum rates throughout 2019

Musk has previously said that shipping the lower-cost version prematurely would cause "Tesla to lose money and die," though the higher-end Model 3s with extra trimmings have still proved incredibly popular. Tesla shipped almost 150,000 of them in 2018 as it became the best-selling luxury vehicle in the US, but it faces a battle to maintain this momentum.

US tax incentives for customers purchasing electric vehicles decreased from $7,500 to $3,750 at the end of last year. In July it will be reduced to $1,875 and then disappear entirely at the end of the year, essentially making buying a Tesla a much more expensive undertaking.

In any case, the company plans to produce the Model 3 at maximum rates throughout 2019, at 7,000 units a week by year's end. It expects deliveries to slow in the US as it turns some of its attention to Europe, where it has just begun shipping cars for the first time, and China, where it has just broken ground on a new Gigafactory.

All things going to plan, it hopes to start producing Model 3s at its Shanghai Gigafactory by the end of the year, targeting a rate of 3,000 per week initially. More ambitiously, it hopes to produce more than 500,000 Model 3s in China annually once the dust settles.

Ahuja's departure isn't the only upheaval happening at Tesla, with the company also recently laying off seven percent of its full-time staff and claiming that a management restructuring will reduce its operating costs by around $400 million annually. It also hopes to begin tooling for the Model Y and to deliver 360,000 to 400,000 total vehicles annually in 2019, which would mark a growth of 45 to 65 percent compared to 2018.

Whichever way it all pans out for the Silicon Valley automaker, 2019 is shaping up as another wild ride.

Source: Tesla

5 comments
Daishi
The auto industry doesn't really have very big margins. Tesla has about a 50-60% year over year growth so their profits are always buried by expansion costs. The Roadster might make more sense as their next vehicle because it's lower volume with a higher profit margin and could give them time to come up for air before taking on another large production line with the Y.
guzmanchinky
I love Tesla. I love American Made. But if Mercedes and BMW really seriously start offering electric versions of most of their cars I think Tesla will fail...
jerryd
It confounds me that a company that doubled production in the last yr while still making a GAAP profit in a falling market is bad. Yet the other big autos are losing profits, market share especially to Tesla of their most profitable lux sports sedans and no one says anything. Tesla only doesn't make a 'profit' because it puts the money back in for growth which increases assets, income, book and stock value. The stock holder having grown 1,000% in 7 yrs are laugh at them all the way to the bank. And a company that will grow 10x in just 5 yrs is a bad investment! The only thing a lower stock price means is time to grab more stock before it leaps ahead again. Later this yr the 3 will be the largest selling US sedan period the stock will jump again as it will at the Y revel.
Grunchy
"Luxury" cars no longer means effective climate control, premium surfaces, or heavy damping. You can get that on any car either standard or as an option. Nowadays "luxury" refers to whimsical, maintenance-intensive gimmicks that don't do anything except look cool and sooner or later strand you somewhere and remind you that your new car is now practically worn out. Tesla can take their "luxury" and stuff it up their own tailpipe. I'm happy with good old practical, reliable American cars that work, thanks. (I'm writing to demonstrate how easy it is to despise Tesla and not even mention any of the personalities involved).
Mark K.
I'm really surprised that Tesla doesn't have any electric two wheelers as of yet.