Surprise! Although Tesla Motors Inc (NASDAQ:TSLA) has struggled to show any sort of consistent profit, the tide may have turned last quarter. Not only did the carmaker end the three-month span in the black, but it did so in convincing fashion.
For its recently completed third quarter, the notorious and contentious maker of battery-powered cars earned 14 cents per share — a GAAP profit of $22 million — on total revenue of $2.3 billion. Analysts had been predicting a GAAP loss of 53 cents per share on sales of $2.34 billion. TSLA lost $1.78 per share on $1.24 billion in sales for the third quarter of 2015, and lost 58 cents on a GAAP basis.
Perhaps more important that anything else, Tesla is clearing more profit for every car it produces as it scales up its operation. For some TSLA stock critics, this was a key missing link.
CEO Elon Musk commented:
“New product launches, increased store efficiency and new store openings drove year-on-year order growth in Q3, while self-driving hardware and other product enhancements position Tesla for additional market share gains. Our energy storage products are gaining increased market acceptance, firmly establishing Tesla as a leader in energy storage solutions, and surpassing our competitors in the breadth and scope of our offerings across residential, commercial, and utility-scale storage markets.”
Beyond Tesla Earnings
Tesla didn’t exactly unveil its third quarter numbers on the best footing.
Since the release of its previous quarterly results in late July, Tesla stock had fallen 14%, and still was within reach of new multi-week lows as of Wednesday’s close. The bulk of that pullback was driven by the realization that Tesla could actually end up acquiring SolarCity Corp (NASDAQ:SCTY). Worse, it would spend a not-so-small fortune to scoop up the struggling solar power outfit.
The deal has solidified in the meantime. As Argus Research’s Bill Selesky summed it up, “The SolarCity deal upsets a lot of investors and potential investors,” as Tesla isn’t exactly in top-top financial shape itself.
The SolarCity acquisition will be put to a shareholder vote on Nov. 17.
Then just this week, Tesla Motors found its vehicles at the low end of Consumer Reports’ third-quarter rankings in terms of reliability.
Nevertheless, Tesla Motors is selling more cars than it ever has before. The company announced earlier this month it delivered 24,500 vehicles during the third quarter — a year-over-year improvement of 70% — versus expectations of 23,000. Elon Musk maintains the company will be able to deliver 50,000 electric automobiles during the second half of 2016.
Of particular interest was the carmaker’s capital spending.
While Tesla’s growth has been tremendous, it hasn’t been cheap. Prior to earnings, frequent Tesla critic and confessed holder of a short position in TSLA stock Jim Chanos commented on the prospect of another round of capitalization.
“Unless (CEO Elon Musk) suspends the law of arithmetic, I don’t see how they avoid it,” he said.
Chanos added the impending acquisition of SolarCity will only exacerbate that problem.
To that end, Tesla Motors ended the quarter with slightly less debt than it started it with. Long-term debt rolled on at $2.65 billion, partially paid down by solid cash flows. It’s still not entirely clear, however, if Musk will be able to sidestep another round of financing.
Either way, the future looks bright for electric car fans, even if it’s not so much for owners of TSLA stock. Apple Inc. (NASDAQ:AAPL) recently all but shut down its electric vehicle development program, removing one potential competitor from the market.
The buzz surrounding a unveiling this Friday has also kept investors on the hook. The event, to be held at Universal Studios on Los Angeles, is widely expected to serve as the introduction of some sort of solar roof. If not that, others think it could be the unveiling event for an integrated Powerwall and automobile charging station. Yet, Musk has made a point of saying, “It’s not a thing on a roof.”
Bottom Line for Tesla Stock
As has been the case since its inception, Tesla stock remains more of a bet on future perceptions than current prospects.
To that end, Tesla Motors turned heads last week when the company announced it was getting into the ride-sharing business next year, taking on names like Uber. Removing the driver from the equation may be the needed evolution to make that business model viable.
Meanwhile, the company maintains that it’s poised to ramp up production to 500,000 automobiles in the year 2018. It remains to be seen, however, how much more money it will need to raise between now and then to make it happen.
Tesla stock holders continue lose patience on that front, but those worries are more than soothed after today’s big win.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.