One week after he indicated the “road ahead is very difficult” for Tesla, CEO Elon Musk seemed to place the electric-car maker on firmer footing.
Tesla said Wednesday it enjoyed its second consecutive profitable quarter during the final three months of 2018, and Musk said he anticipated the company would turn a profit in every quarter this year.
That would be a remarkable run of stability for the company, which posted a $139.5 million net profit in the fourth quarter. That's compared with a $311.5 million net gain in the previous quarter and a $675 million loss during the same period last year.
Tesla generated fourth-quarter automotive revenue of $6.3 billion, a 3.6 percent increase from the third quarter and more than double the $2.7 billion in automotive revenue posted during the same quarter last year.
Whether or not Tesla can continue its momentum will be determined by the future of the Model 3, the electric sedan to which Tesla has tied its fortunes, amid economic headwinds that include potential tariffs and the end of electric vehicle tax credits in the United States.
"As we improve the production rate of Model 3, the cost per vehicle continues to decline,” the company said in its report issued Wednesday after stock markets closed. "It is critical that we continue this trend so that we can keep increasing the affordability of Model 3 while retaining a sustainable level of profitability."
Regardless of those factors, Musk made it clear he expects the Model 3 to lead “exponential” growth in deliveries.
“Even if there’s a global recession, we’re expecting deliveries this year to be about 50 percent higher than last year,” he said. “It could be a lot more than that. Even without tough economic times, to see 50 percent growth is pretty nutty.”
Though Musk said on a conference call with investors Wednesday that the Model 3’s worldwide delivery potential could be as much 800,000 units in a strong economy. Tesla’s guidance issued earlier in the day projected more modest deliveries of 360,000 to 400,000 units.
Deliveries in 2018 amounted to 63,359 vehicles in North America, according to the company. Production for vehicles bound for China and Europe started this month.
The Model 3 was the best-selling luxury vehicle in the U.S. during the fourth quarter and the fifth best-selling passenger car, according to data from research firm Edmunds. The company says it is snagging customers from beyond conventional notions of its segment.
Tesla says its trade-in data suggests only 17 percent of Model 3 customers are transitioning form other midsize premium sedans, and that 60 percent of these trade-ins are nonpremium vehicles. Trade-ins of the company’s Model S sedans for new Model 3s accounted for 4 percent, according to Tesla.
Although launching the car involved a well-documented “production hell,” according to Musk, the company expects to produce 7,000 Model 3s per week on a sustained basis by the end of 2019.
Stretching beyond that will require the seamless start of the company’s planned factory in Shanghai, which Tesla says should be operational by the end of the year. Musk said that should allow the company to reach production targets of 10,000 Model 3s per week by the end of the year – and perhaps critically – circumvent some of the uncertainty caused by trade conditions.
Currently, China and Europe are being prioritized, so that the company can fill orders there before any tariffs go into effect.
“We need to bring the Shanghai factory online, and that’s the biggest variable in us getting to 500,000” units for the Model 3, Musk said. “Our car is very expensive going into China with import duties and the higher cost of labor here. … We hope the trade negotiations go well, but that is unclear.”
Improving customer service
Back in the United States, the biggest goal for Tesla this year remains improving its customer service.
Musk said the company has revamped a system in which spare parts were stored at regional warehouses. Now they’ll be distributed to customer service centers, so that repairs can be made faster. Improvements also include making it easier for customers to make appointments via Tesla’s app and real-time deployment of service vehicles.
“If the car detects a flat tire or equipment failure, there is a tow truck or loader on the way before the car even comes to a halt,” Musk said. “The car does the notification. This will be immense in improving customer happiness.”
In terms of general repairs, “We made a strategic error in the past about not having service parts at service centers," he said. "We had them at warehouses, which made it impossible to have a fast turnaround. It should be possible, in principle, to get a car serviced in 20 minutes, even 15 minutes. It should be like Jiffy Lube, or whatever. Lightning fast.”
Beyond service, Musk indicated that a new version of the company’s Autopilot driver-assist function would be ready within a few weeks, pending regulatory approval, though it remained unclear which regulators Tesla sought approval for, as there is no regulatory approval needed to launch driver-assist features.
Meanwhile, after returning to the electric-car maker last year, Tesla CFO Deepak Ahuja said Wednesday he will retire in the coming months. He will be replaced by Zach Kirkhorn, previously the vice president of finance, will assume the CFO role.
Reaction to the fourth-quarter results and Musk’s comments was mixed. Tesla shares fell 0.5 percent to close at $307.02 on Thursday.
Despite achieving some notable efficiencies, Edmunds analyst Jessica Caldwell says Tesla still faces headwinds in the year ahead.
“Turning a profit, creatively addressing challenges and getting the Model 3 to the masses were huge milestones, but keeping up this momentum is virtually impossible,” she said. “Tesla’s product lineup is starting to get stale, and now thanks to the elimination of the federal tax credit, buying one has never been more expensive. … Tesla is in an awkward purgatory between being a startup and a mainstream automaker, and the biggest open question heading into 2019 is where the company really goes from here.”