What Drove Tesla’s Surprise Third Quarter Profit?

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Tesla (NASDAQ: TSLA)  posted a surprise Q3 profit, reporting an adjusted EPS of $1.86. Wall Street was projecting that the company would post another quarterly loss. While the company’s revenues were slightly lower on a sequential basis due to lower average selling prices and slower delivery growth, it likely benefited from more efficient manufacturing of the Model 3 sedan, with gross margins for the auto business rising by 390 bps sequentially to 22.8%. Separately, Tesla was also able to recognize revenue of about $30 million related to the “Smart Summon” feature that it released in September. This cash the company collected from this software feature was previously recorded as deferred revenues in its balance sheet. The company also sold regulatory credits worth $134 million over the quarter. Below, we take a look at some of the trends that drove the company’s results and what could lie ahead for Tesla.

View our interactive dashboard on What Drove Tesla’s Surprise Q3 Profit?

Model 3 Deliveries Grow 3% Sequentially While Model S&X See Declines

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Model 3 deliveries saw a 3% sequential improvement, with deliveries standing at 79.6k units. Although the growth is not very encouraging, considering that the company now sells variants starting at ~$40k, the numbers should pick up over Q4 as Tesla indicated that it saw record net orders over Q3, with the backlog increasing.

Model S & X deliveries continued to remain lackluster at 17.4k units, marking a 1.5% sequential decline. While Tesla recently lowered the base price and introduction of an upgraded drivetrain and suspension setup on these vehicles, it is likely that they are being impacted by saturation in the premium end of the market and cannibalization by the Model 3.

Tesla Automotive Revenues Remain Almost Flat, Amid Slower Delivery Growth

Tesla’s Automotive revenues remained almost flat at $5.4 billion this quarter. While deliveries have grown marginally from 95.2k units in Q2 to 97k units in Q3, average revenue per vehicle declined, from $56.5k to $55.2k due to the higher mix of Model 3s and lower starting prices.

Tesla’s Total Revenues For  Q3 

Tesla’s total revenues stood at about $6.3 billion for the quarter. Other revenues, which include revenues from Tesla’s Service operations and renewable energy segment stood at about $950 million.

Tesla’s Margins See An Uptick, Helping It Return To Profitability

For more details on Tesla’s margins and what’s driving its return to profitability, view our interactive dashboard analysis.

 

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