Will Tesla’s Strong Production Numbers Lead To Profitability This Quarter?

by Trefis Team
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Tesla (NYSE:TSLA) published its production figures for Q3 2018, reporting that it produced a record 80k vehicles over the quarter, marking a 50% sequential increase, as it significantly scaled up production of its Model 3 sedan. Tesla’s ability to produce the Model 3 at scale is viewed as the most important driver of a financial turnaround for the company, and the recent production report could indicate that it is on track to become profitable and cash flow positive over the second half of 2018.

Our interactive dashboard analysis outlines our expectations from Tesla over 2018. You can modify the drivers (in blue dots) to arrive at your own estimates for the company’s revenues and earnings.

Model 3 Production Scales Up With A More Premium Sales Mix

Tesla produced a total of 53,239 Model 3 vehicles over the quarter, meeting its guidance range of 50k to 55k cars, which is almost double the volume it achieved over Q2. The company noted that it achieved a weekly production rate of 5,300 Model 3 vehicles towards the end of the quarter, up from 5,000 Model 3 cars at the end of Q2. Tesla is also seeing a more premium product mix for the vehicle, as it indicated that it was currently almost exclusively producing the dual-motor version of the Model 3, which sells at a premium of about $6,000 over the rear-wheel drive car. Moreover, Tesla continues to only sell the long-range version of the car with premium interiors, meaning that variants that the company is currently building are likely to have average prices of above $55,000 per vehicle excluding the autopilot and performance options, which come at an additional cost of almost $8,000 and $9,000 each. The improving product mix, coupled with the larger economies of scale, could bode well for the margins of the new sedan. Tesla previously said that Model 3 gross margins could grow to about 15% in Q3 and around 20% in Q4. Deliveries of the premium Model S and X vehicles also looked up over the quarter, rising from a total of 22,300 units in Q2 2018 to 27,660 units, and it’s possible that this could also drive the company’s revenues and margins.

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