Tesla turns its first profit in years as Model 3 continues to rise
You gotta spend money to make money, but when you're burning through hundreds of millions of dollars a quarter that leaves quite a bit to do to balance the books. After what you might call a pretty eventful twelve months, Tesla has now turned its first profit in years, as demand and delivery of its Model 3 sedan continues to rise.
The Model 3 was always billed as the vehicle that would be key to Tesla long-term success, but it has been a rocky road for the mass market-oriented vehicle so far. Hundreds of thousands of people pre-ordered the car soon after it was announced, and to say Tesla has struggled to meet or keep up with the demand would be putting it mildly.
After citing production bottlenecks and managing 260 Model 3s in Q3 of 2017, Tesla ramped things up over the past 12 months to produce and deliver 56,065 Model 3s to customers in Q3 of 2018, and just under 70,000 vehicles in the US overall.
Tesla has long targeted a 5,000-strong weekly production of its Model 3, and it has again come up short of the mark. It managed an average of 4,300 in Q3, planned factory shutdowns excluded. In the meantime, it says it has grown the gross margin on the vehicle to more than 20 percent, due in part to a decrease in labor hours per Model 3 by more than 30 percent between Q2 and Q3.
Which leads us to the money. Tesla has posted a string of monster losses over the past year, with a US$675 loss in Q4 of last year followed by a $710 million loss in Q1 this year, and then a $718 million loss in Q2.
This time around, it is reporting a profit of $312 million in Q3, its first profitable quarter in over two years and only the third in its history. This was driven by a total revenue of $6.8 billion, compared to a $4 billion revenue in Q2. The company says the Model 3 was the best-selling car in the US for revenue in Q3, and the fifth best selling in terms of volume in that time.
So things seem to be trending nicely for Tesla and its enigmatic CEO Elon Musk, but there is still work to be done in delivering its biggest carrot of all, an affordable electric sedan at a $35,000 price point. The company has for years offered high-performance electric cars with larger profit margins, and the Model 3s on the streets today are similarly higher-end, costlier versions.
Last week it started taking orders for a mid-level Model 3 with a 260-mile range (420 km) and a $45,000 sticker price, which has since been subtly raised to $46,000. Musk has previously said that prematurely shipping the standard Model 3 with its lower margins would cause Tesla to "lose money and die," and that the company needs three to six months of consistently pumping out 5,000 a week before it makes that move.
There are no shortage of industry skeptics and folks that doubt the "affordable" version will ever eventuate, but Tesla maintains it is "working hard to bring down the price of Model 3 to $35,000," without getting at all specific about the timeline. The company also says it expects to start taking orders in Europe and China for the Model 3 before the end of the year.