- Tesla Motors Inc posted a surprise $22 million profit in the third quarter, beating analyst expectations by a wide margin.
- The company announced record delivery and production numbers of its top of the line electric cars.
- More importantly, Tesla's future strategy is likely to ensure that this is not a one-off success.
Tesla Motors Inc (NASDAQ:TSLA) posted its second profitable quarter ever and beat analyst expectations for the third quarter by a wide margin. Tesla cited new product launches, increased store efficiency, and new store openings as driving factors for the positive third-quarter results, adding that the recent improvements to its self-driving hardware, position it for additional market share gains. Here's why Tesla looks set for a good run.
"The Tesla third quarter results reflect strong company-wide execution in many areas," reads the Tesla Third Quarter 2016 Update. "Furthermore, we expect this to continue into Q4 and project positive GAAP [Generally Accepted Accounting Principles] net income (excluding non-cash stock-based compensation) despite ZEV [Zero Emission Vehicle] credit sales in Q4 likely being negligible. We set new records for vehicle production, deliveries and revenue, which led to GAAP profitability and positive free cash flow (cash flows from operations less capital expenditures). At the same time, GAAP total automotive gross margin and gross profit per car increased substantially."
In an announcement earlier this month, which exceeded the expectations of industry analysts, Tesla CEO Elon Musk revealed that all new Tesla cars will be equipped with new "Hardware 2" and new software, gradually introduced over time, which will eventually enable the cars to drive themselves, Amigobulls reported. The company plans to self-drive a fully autonomous car from Los Angeles to New York in a demonstration by the end of next year, and deliver self-driving cars to consumers ahead of the competition.
Tesla is pivoting towards the clean energy sector, where it's trying to establish a leadership position in power storage and distribution networks, without abandoning the automotive sector. In fact, the company is advancing incrementally, step-by-step, towards fully autonomous cars, expected to be the next big thing.
But the current earnings come from Tesla's traditional product line: top class electric cars. The company announced record delivery and production numbers, beating the second-quarter delivery and production numbers by 70 percent and 37 percent respectively, and it predicts 50,000 new vehicle deliveries for the rest of the year, with a fourth-quarter plan of just over 25,000 deliveries. In the third quarter, Model S and Model X orders were up 68 percent from last year's third quarter. Tesla produced 25,185 vehicles in the third quarter, 37 percent up from the second quarter, and 92 percent up from last year's third quarter.
The new business and product lines that Tesla is envisaging - self-driving cars and clean energy storage - have not had the time to contribute to the company's earnings. If anything, the new Tesla ventures still carry a loss, as it's usually the case for new ambitious initiatives. But Tesla is re-affirming its commitment to the new initiatives, because that's where the future profits will come from.
Tesla notes that it is providing the largest lithium-ion battery storage facility in the world to Southern California Edison, recently covered by Amigobulls, with an impressive delivery time of less than four months, enabled by the fast production capacity of the Tesla Gigafactory.
"Our energy storage products are gaining increased market acceptance, firmly establishing Tesla as a leader in energy storage solutions, and surpassing our competitors in the breadth and scope of our offerings across residential, commercial, and utility-scale storage markets," claims Tesla. "At the same time, we continue to lay the foundation for future growth. [Our] efforts to transform the solar industry will be demonstrated at our joint product introduction with SolarCity on October 28th."
At the event, Tesla CEO Elon Musk outlined his vision for how the merger of the two companies - Tesla and SolarCity - would result in an integrated system of solar panels, wall-mounted batteries and electric cars. "People always think of Tesla as an electric-car company, but really the whole point of Tesla was to accelerate the advent of sustainable energy," said Musk, as reported by The Wall Street Journal. Musk's goal is "to make solar roofs that look better than a normal roof, generate electricity, last longer, have better insulation and an installation cost that is less than a normal roof plus the cost of electricity."
"With the previously announced plan to acquire SolarCity, we look forward to making solar as compelling as electric vehicles," notes Tesla. "Acquiring SolarCity would leverage Tesla's existing investments in the Gigafactory and the next-generation Powerwall and Powerpack to drive revenue growth."
The last quarterly results show that Tesla is taking good care of its current business, and producing shareholder value. Investors should trust Musk's and Tesla's management abilities to successfully build the company's future business as well.
Interested In Auto Stocks? Check Out Our Top Auto Stock Picks