Tesla posts surprise profit as Elon Musk tempers cash burn
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San Francisco: Tesla Motors Inc. surprised investors with its first profit in eight quarters after chief executive officer Elon Musk urged employees to cut costs and deliver every car they could to boost results and prove Wall Street skeptics wrong.
The electric-car maker’s shares rose about 4% in late trading after it posted third-quarter profit excluding some items of 71 cents a share, instead of the average 54-cent loss projected in a survey of seven analysts. Forecasters had hustled in recent days to adapt their models as Tesla hewed closer to GAAP reporting methods.
“This was a great three months for the company,” said Joe Dennison, associate portfolio manager at Seattle-based Zevenbergen Capital Investments LLC, which owns 584,000 shares of Tesla. “Despite daily headlines and skepticism, Tesla continues to widen its technology lead and make steady progress towards its goals of mass production.”
The results provide some vindication for Musk, who tempered Tesla’s cash burn ahead of a 17 November shareholders vote on the proposed merger with SolarCity Corp. That deal has drawn criticism as a potential distraction as Tesla spends heavily to prepare its California factory for the high-volume Model 3 car and build out its Gigafactory battery plant in Nevada. In a letter to shareholders, Musk today lowered the expected spending on capital expenditures for 2016 to $1.8 billion, from $2.25 billion last quarter, to “focus on capital efficiency.”
“We were able to have our best quarter ever and achieve full GAAP profitability,” said Musk on a conference call with analysts. “It’s definitely one of the best moments ever in Tesla.”
The Palo Alto, California-based company also maintained its forecast for 50,000 vehicles delivered in this year’s second half, after shipping 24,800 Model S sedans and Model X sport utility vehicles in the quarter, more than analysts had estimated.
In an 29 August e-mail, Musk told employees the third quarter would be their last chance to show investors that Tesla could be at least a little profitable and cash-flow positive before the Model 3 ramps up production. “We are on the razor’s edge of achieving a good Q3, but it requires building and delivering every car we possibly can, while simultaneously trimming any cost that isn’t critical, at least for the next 4.5 weeks,” he wrote at the time.
Tesla said it had $3.08 billion in cash and equivalents at end of the quarter, down from $3.25 billion at the end of the second quarter.
The Model 3, slated to begin at $35,000 before government incentives, is key to Tesla’s plan to expand to a wider market for its battery-powered autos. Enthusiasts stood in line at stores around the world to place $1,000 reservations for the Model 3 when it was revealed in late March. In May, Tesla said it had received roughly 373,000 pre-orders for the car, but has not updated that figure since.
Tesla continued to tout the benefits it expects from the pending acquisition of SolarCity for about $2.2 billion. It plans to showcase a new solar-roof product and improved battery for home energy storage in Los Angeles on Friday night.
The company also has said it will share more updates about the strategic plan for the SolarCity combination and will provide more financial information 1 November. Tesla’s shares fell about 16% so far this year through Wednesday’s close, in part because of skepticism about the deal.
On an earnings per share basis, the year-earlier loss was 58 cents. Revenue for the quarter almost doubled to $2.3 billion on a Generally Accepted Accounting Principles basis, helped by $139 million in credits for zero-emissions vehicles, Tesla reported Wednesday. In an 11-month period through August, the 80,277 credits Tesla sold to other automakers with less-efficient fleets equaled about 86% of the credits sold by the entire industry.
With its latest report, Tesla phased out most of the non-GAAP adjustments it’s traditionally made, including ones for resale value guarantees or vehicles leased through banking partners. Starting today, when the company discusses third-quarter adjusted non-GAAP earnings per share, it plans to exclude only stock-based compensation. Bloomberg