Tesla’s Road to Profitability

Tesla posted a 300M profit in Q3 of 2018, the first time in 2 years which is a 143% increase of the previous quarter. Let’s look at how we got here though. // join our community of Tesla fans at https://teslanomics.co/join

Telsa went public on Jan 29th 2010, amidst the financial recovery and without their flagship Model S sedan for sale yet
It wasn’t until June 22nd 2012 did they finally start to deliver their first real production car which would really drive their growth and solidify them as a contender in the luxury auto space

Prior to that the only Tesla in existence was the Roadster which was converted from the Lotus Elise sports car

While this was a cool concept and captured the attention of many environmentally friendly celebrities like George Clooney

It proved to be somewhat of a terrible approach and thus Tesla went back to the drawing board with their new Chief Design Franz von Holzhausen who has a very German sounding name but grew up in Connecticut

As it turns out, building the Model S took a lot of resources leading to a pretty rough financial situation without much of a track record of success. During this time Tesla was spending far more money then they were making to the tune of a 100M loss for Q2 of 2012 and 111M in Q3

// This is where the tides began to shift

As Tesla started to deliver the Model S in late Q3 of 2012 the revenue took off, doubling in that quarter alone and growing again by over 500% the next quarter. This growth led to Tesla seeing it’s first profitable quarter in Q1 of 2013 to the tune of 11M.

Earlier in 2012 Tesla also unveiled their SUV, the Model X, and of course, this took quite a bit of money to start building. So after that profitable quarter in 2013 Tesla began it’s next growth phase while it built out the equipment and supply ines for the Model X and again was spending more money than it brought in. This time they were spending a ton more though, as they had some other major expenses during this time giving them a negative net income of over 300M in Q4 of 2015.

Things started to change a bit in that time though as Model X deliveries started to roll out bringing in some much needed revenue
This gave Tesla their second profitable quarter in Q3 of 2016, this time a total of 22M in Net Income.

And as you can probably predict, Tesla and Elon had more plans in the works. The Tesla Model 3, their first mass-market electric car with a price that many more could afford than the previous two models.

On March 31st of 2016 Tesla unveiled the Model 3 to the world. The day of thousands around the globe stood inline at stores and put down a thousand dollar deposit along with hundreds of thousands more in the coming days online

All for a vehicle they wouldn’t receive for at least two years, and some are still waiting today!

And of course during that time Tesla had to reconfigure their general assembly plant in Fremont California along with building out large sections of the battery factory in Nevada. As you can imagine these endeavors required large amounts of capital and thus Tesla’s profitability again sunk to new lows.

In Q2 of 2018 Tesla produced their largest loss to date, spending 718M more then they brought in. This brings us to Q3, when Tesla reported the following:

– GAAP net income of $312M, non-GAAP net income of $516M
– Operating income of $417M and operating margin of 6.1%
– Free cash flow of $881M supported by operating cash flow of $1.4B
– $3.0B of cash and cash equivalents at Q3-end, increased by $731M in Q3
– Model 3 GAAP and non-GAAP gross margin over 20% in Q3
– Reaffirm expectation of continued GAAP net income and free cash flow in Q4

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