Tesla records 2nd profit as public company

For just the second time in its history as a public company, Tesla Motors Inc. reported net income, making $22 million net for the third quarter.

The company on Wednesday attributed the gains -- which broke a 13-quarter streak of losses -- to record production, deliveries and revenue. This month, Tesla said it delivered 24,500 cars in the third quarter, putting it on track to hit its goal of 50,000 vehicle sales for the second half of 2016.

But a significant part of Tesla’s third quarter revenue came from pollution credits it sold to other automakers. In the third quarter, Tesla booked $139 million in those credits, up from $39 million a year ago. The company said it expects revenue from those credits to decline in the fourth quarter. 

“New product launches, increased store efficiency and new store openings drove year-on-year order growth,” Tesla said in a statement. “Self-driving hardware and other product enhancements position Tesla for additional market share gains.”

Quarterly revenue more than doubled compared with the third quarter of 2015, coming in at $2.3 billion compared with $937 million.

Tesla shares rose 4.5 percent in Thursday morning trading, but closed the day up 0.9 percent to $204.01.

Zero emission credits

Tesla’s boost from Zero Emission Vehicle Credit transfers will likely be short-lived.

ZEV revenue is expected to drop in the fourth quarter as automakers sell more electric vehicles so they won’t need to buy as many from Tesla. A member of the California Air Resources Board told Bloomberg in August that the agency could limit the number of credits individual automakers receive when it reevaluates the program before the end of the year.

On a call with investors, Tesla CEO Elon Musk said the company can maintain its net income for the fourth quarter without the credits because the automaker is increasing vehicle profit margins and has increased production of the Model S P100D -- which starts at $134,500. The automaker is also planning to cut capital costs for 2017.

“Expect gross margins to increase, that’s a huge factor,” Musk said. “We’re using very few prototype parts and have had a bunch of design improvements and design cut-downs.”

Some investors had worried that Tesla would not post a profit since it is gearing up for Model 3 production -- an expensive undertaking. The Model 3 has been well-received and has 373,000 preorders. Tesla said the plan to start selling the Model 3 in the second half of 2017 is on track.

Battery plant on schedule

The company said the construction of its battery gigafactory in Nevada is also on schedule.

This month, Musk said all new vehicles will be equipped with self-driving hardware, though software updates won’t be released for the next two to three months.

Also mentioned on the call:

• Barring unforeseen events, Musk expects that Tesla will not need to raise additional capital to execute Model 3 production and deliveries.
• In the first half of the year, Tesla ran into production issues that “took a year out of my life from camping out in the Tesla factory,” Musk said. Those problems have been addressed and the company is hitting its goal of producing 2,000 vehicles a week.
• Tesla has streamlined its capital expenditures, averaging $250 million a quarter in 2016, according to CFO Jason Wheeler. That number is expected to decrease further in 2017.