Tesla shares jump as Musk delivers quarterly profit, cash

SAN FRANCISCO: Tesla Inc reported a net profit, positive cash flow and wider-than-expected margins for the latest quarter on Wednesday, delivering on Chief Executive Elon Musk’s promise to turn the electric carmaker profitable as higher production volumes of its new Model 3 began to pay off.
Tesla reiterated that it expected to repeat its net profit in the current quarter, helping drive the company’s shares up 14 per cent in after hours trading.
The controversial Musk, who has often set goals and deadlines that Tesla has failed to reach, surprised investors by delivering on his pledge to make Tesla profitable for only the third quarter in its 15-year existence, providing a positive end to a difficult quarter for the CEO whose leadership was openly questioned only weeks ago.
“We can actually be cash flow positive and profitable in all quarters going forward,” Musk said, qualifying that he excluded those in which a big debt payment comes due, such as the first quarter of 2019.
Musk reiterated that Tesla currently does not plan to raise equity or debt.
Tesla said it would begin taking orders in Europe and China for the Model 3 before the end of 2018. Deliveries would begin to Europe in late February or March, and those to China in the second quarter, if not before, Musk said.
Musk said he planned to begin local production in China next year in a ‘capital efficient manner,’ suggesting the company might use a similar tent structure for car assembly that has already been used at its Fremont, California, plant. He gave no further details on plans in China.
Meanwhile, seeking to quell speculation that a large number of prospective buyers had cancelled their reservations due to delays receiving their cars, Tesla said only 20 per cent of North American reservation-holders had cancelled their bookings.
Free cash flow at $881 million was positive for only the third time in Tesla’s history and was helped by a surge of new production of the Model 3, lower capital expenditures, and more efficient use of working capital.
While still below the production target it set for June of 5,000 Model 3s per week, the roughly 4,300 Model 3s the company is now averaging per week were enough to boost results.
Despite pledges by Musk and Chief Financial Officer Deepak Ahuja to manage operations and future projects in a capital efficient manner, some on Wall Street still foresee a capital raising as likely at some point.
“(Raising cash) became a whole lot easier,” after Wednesday’s results, said Tigress Financial Partners analyst Ivan Fienseth. “He will need to do it, right? But if you got a profitable company it’s whole lot easier to raise money.”
The results were a boost for the embattled company after a quarter in which US security regulators accused Musk of fraud for tweeting that he had secured funding for a deal to take the company private which never materialized. A settlement between Musk, Tesla and the US Securities and Exchange Commission allowed Musk to remain as CEO, but required a new independent chairman to oversee an array of capital- intensive new projects in 2019, from a factory in China to development of Tesla’s new Model Y SUV.
Musk had vowed since May that Tesla would be profitable in both the third and fourth quarters, and has repeated that the company would not need new capital from financial backers. — Reuters