Can Tesla Keep Cutting Costs to Post Profits?

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Tesla Inc. (NASDAQ: TSLA) reported third-quarter 2019 earnings after markets closed on Wednesday. The electric car maker posted adjusted diluted earnings per share of $1.91 on revenues of $6.3 billion. In the same period a year ago, the company reported EPS of $3.02 on revenues of $6.82 billion. Third-quarter results also compare to consensus estimates calling for an adjusted loss per share of $0.42 and $6.33 billion in revenues.

On a GAAP basis, the electric vehicle maker posted net income of $143 million (non-GAAP totaled $342 million). Pretax profit totaled $876 million, and pretax margin more than doubled sequentially from 5.8% to 13.9%.

Operating expenses fell sequentially by more than $150 million, while operating cash flow dropped by $108 million to $756 million. In the year-ago quarter, Tesla’s operating cash flow totaled $1.39 billion.

Free cash flow totaled $371 million, compared to $881 million in the third quarter of last year. More than half of this year’s free cash flow is down to lower capital spending.

Tesla produced 96,155 vehicles in the quarter and delivered 97,186. Of those deliveries, 2,588 of Model S and Model X vehicles and 6,498 Model 3s were leased.

In its comments on the quarter, Tesla noted:

Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened. Additionally, operating expenses are at the lowest level since Model 3 production started. As a result, we returned to GAAP profitability in Q3 while generating positive free cash flow. This was possible by removing substantial cost from our business.

In the outlook statement, Tesla expects to exceed 360,000 deliveries this year and to post positive free cash flow “going forward.” The company also expects to be profitable in the future, “with possible temporary exceptions,” which it says would accompany new product launches and production ramps.

The Shanghai factory has begun trial production and earlier this month Tesla said it expects to be producing 1,000 Model 3 sedans a week by the end of the year. The company expects to launch its Model Y by next summer and produce limited numbers of its semi.

Shares jumped by 20% after last night’s report, and the stock traded up nearly 18% in Thursday’s premarket session, at $299.78 in a 52-week range of $176.99 to $379.49. The 12-month consensus price target on the stock is $245.63.


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