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Tesla surprises with $312M profit for Q3 as Model 3 margins soar past 20%

Tesla's Fremont factory, where all Model 3s are produced. (Tesla)

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Tesla’s third-quarter earnings for 2018 saw the California-based carmaker beat Wall Street revenue estimates after posting $6.8 billion in revenue and beating earnings estimates with a GAAP profit of $312 million.

The results, which were posted in an Update Letter to investors after the closing bell on Wednesday, October 24, showed third-quarter earnings of $1.75 per share on a GAAP-basis, shattering analyst estimates of -$.19 per share. Revenue was $6.82 billion versus an estimate of $6.33 billion. The company reported an adjusted non-GAAP profit of $512M or $2.90 per share. 

Profitability

Tesla posted a profit of $312 million, attaining the ambitious target set by CEO Elon Musk earlier this year. The electric car maker went through great lengths to reach profitability, from a 9% layoff across the company back in June to a massive delivery blitz in the third quarter that was augmented by volunteer owners who helped deliver vehicles to reservation holders.

“With average weekly Model 3 production through the quarter (excluding planned shutdowns) of roughly 4,300 units per week, we achieved GAAP net income of $312 million. We also delivered on our internal cost efficiency targets, leading to GAAP Model 3 gross margin of more than 20%, which exceeded our guidance,” Tesla stated in the update letter. 

This is the company’s first profitable quarter since Q1 2013, when the company posted a minor profit. The company also saw its free cash flow rise to $739M, versus a net loss of $436M last quarter.

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Revenue

The company’s revenue for the third quarter consisted of $6.09B in automotive revenue and $399M from the energy and battery storage division. Automotive revenue saw an increase of 82% compared to the previous quarter. The energy and battery storage division saw an increase of 6.6% compared to the previous quarter. Overall, total revenue was up  70.5% compared to Q2 and up 229% year-on-year.

The drastic increase in automotive revenue was mainly driven from the company’s Model 3 sales, which rose to over 56,000 deliveries in the quarter. Tesla deployed 93 MW of energy generation and 239 MWh of energy storage products in the third quarter as well, both of which grew over the previous quarter.

Model 3

Elon Musk once noted that the Model 3 was a “bet-the-company” vehicle — a car whose success or failure would determine Tesla’s future. The challenges that Tesla faced with the Model 3 ramp are well-documented, with Elon Musk describing the ordeal as one of the most painful periods of his career. The third-quarter proved to be a breakthrough for Tesla, though, as the company was able to make headway in both the number of vehicles produced and delivered.

The Model 3 had a gross margin exceeding 20% in the quarter. Tesla continues to expect this to rise to 25%, excluding any ZEV credits.

“Model 3 mix was strong in Q3 due to the launch of AWD and Performance variants. While the average selling price will gradually decline as we introduce lower priced variants, we are not expecting this to impact profitability. Model S and X Performance mix declined roughly 4-fold since 2015, yet Model S and X gross margin (excluding ZEV credits) continued to improve by roughly 600 basis points over the same period of time. Margin growth was caused by gradual cost improvements driven by lowering labor hours per vehicle, reduced cost of raw materials, and various other cost efficiencies. We continue to target a 25% gross margin ex-ZEV credits on Model 3.” – Tesla’s Q3 Letter

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Today’s trading session ended with TSLA down 1.92% at $288.50. After-hours, the stock was trading up  8.3% to $312.45.

Tesla’s full Q3 2018 Update Letter can be accessed here.

Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Elon Musk

Tesla CEO Elon Musk’s $1 trillion pay package hits first adversity from proxy firm

ISS said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”

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tesla elon musk

Tesla CEO Elon Musk’s $1 trillion pay package, which was proposed by the company last month, has hit its first bit of adversity from proxy advisory firm Institutional Shareholder Services (ISS).

Musk has called the firm “ISIS,” a play on its name relating it to the terrorist organization, in the past.

The pay package aims to lock in Musk to the CEO role at Tesla for the next decade, as it will only be paid in full if he is able to unlock each tranche based on company growth, which will reward shareholders.

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However, the sum is incredibly large and would give Musk the ability to become the first trillionaire in history, based on his holdings. This is precisely why ISS is advising shareholders to vote against the pay plan.

The group said that Musk’s pay package will lock him in, which is the goal of the Board, and it is especially important to do this because of his “track record and vision.”

However, it also said the size of the pay package will enable Musk to have access to “extraordinarily high pay opportunities over the next ten years,” and it will have an impact on future packages because it will “reduce the board’s ability to meaningfully adjust future pay levels.”

The release from ISS called the size of Musk’s pay package “astronomical” and said its design could continue to pay the CEO massive amounts of money for even partially achieving the goals. This could end up in potential dilution for existing investors.

If Musk were to reach all of the tranches, Tesla’s market cap could reach up to $8.5 trillion, which would make it the most valuable company in the world.

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Tesla has made its own attempts to woo shareholders into voting for the pay package, which it feels is crucial not only for retaining Musk but also for continuing to create value for shareholders.

Tesla launched an ad for Elon Musk’s pay package on Paramount+

Musk has also said he would like to have more ownership control of Tesla, so he would not have as much of an issue with who he calls “activist shareholders.”

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Investor's Corner

Barclays lifts Tesla price target ahead of Q3 earnings amid AI momentum

Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.

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Credit: Tesla China

Barclays has raised its price target for Tesla stock (NASDAQ: TSLA), with the firm’s analysts stating that the electric vehicle maker is approaching its Q3 earnings with two contrasting “stories.” 

Analyst Dan Levy adjusted his price target for TSLA stock from $275 to $350, while maintaining an “Equal Weight” rating for the EV maker.

Tesla’s AI and autonomy narrative

Levy told investors that Tesla’s “accelerating autonomous and AI narrative,” amplified by CEO Elon Musk’s proposed compensation package, is energizing market sentiment. The analyst stated that expectations for a Q3 earnings-per-share beat are supported by improved vehicle delivery volumes and stronger-than-expected gross margins, as noted in a TipRanks report.

Tesla has been increasingly positioning itself as an AI-driven company, with Elon Musk frequently emphasizing the long-term potential of its Full Self-Driving (FSD) software and products like Optimus, both of which are heavily driven by AI. The company’s AI focus has also drawn the support of key companies like Nvidia, one of the world’s largest companies today.

Still cautious on TSLA

Despite bullish AI sentiments, Barclays maintained its caution on Tesla’s underlying business metrics. Levy described the firm’s stance as “leaning neutral to slightly negative” heading into the Q3 earnings call, citing concerns about near-term fundamentals of the electric vehicle maker.

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Barclays is not the only firm that has expressed its concerns about TSLA stock recently. As per previous reports, BNP Paribas Exane also shared an “Underperform” rating on the company due to its two biggest products, the Robotaxi and Optimus, still generating “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” BNP Paribas, however, also estimated that Tesla will have an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040, and more than 11 million FSD subscriptions by 2030.

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Investor's Corner

BNP Paribas Exane initiates Tesla coverage with “Underperform” rating

The firm’s projections for Tesla still include an estimated 525,000 active Robotaxis by 2030.

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Credit: Tesla China

Tesla (NASDAQ: TSLA) has received a bearish call from BNP Paribas Exane, which initiated coverage on the stock with an Underperform rating and a $307 price target, about 30% below current levels. 

The firm’s analysts argued that Tesla’s valuation is driven heavily by artificial intelligence ventures such as the Robotaxi and Optimus, which are both still not producing any sales today.

Tesla’s valuation

In its note, BNP Paribas Exane stated that Tesla’s two AI-led programs, the Robotaxi and Optimus robots, generate “zero sales today, yet inform ~75% of our ~$1.02 trillion price target.” The research firm’s model projected a maximum bull-case valuation of $2.7 trillion through 2040, but after discounting milestone probabilities, its base-case valuation remained at $1.02 trillion.

The analysts described their outlook as optimistic toward Tesla’s AI ventures but cautioned that the stock’s “unfavorable risk/reward is clear,” adding that consensus earnings expectations for 2026 remain too high. Tesla’s market cap currently stands around $1.44 trillion with a trailing twelve-month revenue of $92.7 billion, which BNP Paribas argued does not justify Tesla’s P/E ratio of 258.59, as noted in an Investing.com report.

Tesla and its peers

BNP Paribas Exane’s report also included a comparative study of the “Magnificent Seven,” finding Tesla’s current market valuation as rather aggressive. “Our unique comparative analysis of the ‘Mag 7’ reveals the extreme nature of TSLA’s valuation, as the market implicitly says TSLA’s 2035 earnings (~55% of which will be driven by Robotaxi & Optimus, w/ zero sales now) have the same level of risk & value-appropriation as the ‘Mag 6’s’ 2026 earnings,” the firm noted.

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The firm’s projections for Tesla include an estimated 525,000 active Robotaxis by 2030, 17 million cumulative Optimus robot deliveries by 2040 priced above $20,000 each, and more than 11 million Full Self-Driving subscriptions by 2030. Interestingly enough, these seem to be rather optimistic projections for one of the electric vehicle maker’s more bearish estimates today.

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