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Tesla Stock Soars After the Electric Automaker Reports Q3 Profit

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【Summary】Tesla’s long anticipated third quarter results were disclosed yesterday and the California automaker pleased investors as it reported a profitable quarter. Strong sales of the Model 3 helped Tesla’s bottom line, and sent it stock to an 8-month high rising 21% to $307.12 per share in after hours trading on Wednesday.

Eric Walz    Oct 24, 2019 7:00 AM PT
Tesla Stock Soars After the Electric Automaker Reports Q3 Profit

Tesla's long anticipated third quarter results were disclosed yesterday and the California automaker pleased investors as it reported a profitable quarter. 

Strong sales of the Model 3 helped Tesla's bottom line, and sent it stock to an 8-month high rising 21% to $307.12 per share in after hours trading on Wednesday, crossing $300 mark for the first time since March 1.

Tesla reported a net profit of $143 million or $1.86 dollars a share, easily beating analyst expectations of a loss of 42 cents per share. In addition, the company posted a cash balance increase to $5.3 billion. 

Tesla's gross margins are an important profit indicator for investors and they surpassed expectations reaching 18.9%.

Tesla reported record vehicle production of 96,000 units and deliveries of 97,000 vehicles to customers. Tesla said it was "highly confident" in exceeding the low end of its yearly global vehicle delivery goal.

Model 3 production hit 79,837, representing a 10% percent increase from Q2 and 50% year over year. Tesla does not release individual Model S and X SUV sales numbers, but the two models combined totaled 16,318 in Q3, representing a 12% increase. However, combined sales of the two flagship models fell by 39%, indicating that the Model 3 may be cannibalizing sales of Tesla's other offerings.

Among the highlights of yesterday's earnings announcement was Musk's announcing the rapid progress on Tesla's Shanghai Gigafactory. Musk said construction is well ahead of schedule and that trail production has already begun. Tesla broke ground at the new factory in January of this year. 

The Shanghai factory will build the Model 3 and Model Y crossover for customers in China, the world's largest auto market and an important one for Tesla.

Although sedan sales have fallen in the U.S. and consumers switch to SUVs and smaller crossover, in China they remain popular. Tesla said that China is by far the largest market for mid-sized premium sedans with Model 3 priced on par with gasoline powered midsize sedans. 

"We believe China could become the biggest market for Model 3." Tesla wrote in its earning report.

Tesla is the first automaker to wholly own an auto factory in China after the Chinese government relaxed rules in 2018 requiring foreign automakers to set up a joint venture with a Chinese partner. Foreign automakers were limited to owning no more than 50% stake in any joint venture.

The lifting of the rules paved the way for Tesla to build its new factory in China and avoid import tariffs on autos. Amid the ongoing trade war, the tariffs are scheduled to rise another 25% on Dec 15 if no deal is worked out between the Trump administration and Beijing.

The Shanghai factory has already started trail production and is expected to be up and running by the end of the year.

Musk said that he expects the new Model Y crossover to widely popular with consumers and predicts it will eventually sell more than all other Tesla models combined. Production is scheduled to begin at the automaker's Fremont, Calif. Factory in the summer of 2020.

The upcoming Model Y will help Tesla stay ahead of rivals that are following Tesla's lead and introducing their own premium electric electric models, including the Audi e-tron, Mercedes Benz EQC, BMW X3, as well as other mass-market offerings such as the Hyundai Kona EV.

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Elon Musk predicts the upcoming Tesla Model Y crossover will outsell all of the company's other models combined.

The third-quarter results are an important milestone for Tesla and redemption for Musk who had to step down as chairman after a series of scandals and investor doubts about Tesla's ability to withstand competition from larger, better capitalized global rivals.

But Tesla has yet to prove that it can be consistently profitable while managing the start of production for Model 3 sedans at its new factory in Shanghai and for Model Y sport utilities next year.

"Given the breakneck speed of expansion, Tesla will face significant demands on its cash pile," said Nicholas Hyett to Reuters, an analyst at Hargreaves Lansdown.

Tesla also has to contain costs as it develops another gigafactory in Europe, a Semi truck, an electric pickup truck, the next generation Tesla Roadster and new technology to support autonomous driving and other features.

Tesla said its European Gigafactory is expected to produce both the Model 3 and Model Y crossover.

Tesla's latest vehicle innovations include the September rollout of its vehicle software called V10. The update includes support for streaming video including YouTube and Netflix, along with improved search and other functionalities. 

Tesla also improved the range of its electric vehicles. The company said it was able to increase the EPA range of the Model 3 Standard Range Plus from 240 miles to 250 miles by more efficient energy use, rather than increasing the size of the battery pack. 

Tesla said its shortest-range Model 3 is on parity with the longest-range production EVs offered by other companies, adding that the Long-range models of each Model S, X and 3 continue to have 20-40% higher range than any other EV available, which may help Tesla stay ahead of its rivals.

resource from: Reuters

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