Right after Tesla Inc. wowed Wall Street with its earnings report, Chief Executive Elon Musk looked toward the future, predicting big advances for his company’s finances, its Model 3 cars and its long-promised solar roofs.
Investors were excited the Palo Alto company posted a quarterly profit — something that Musk had predicted but that had seemed uncertain. Tesla’s stock leaped 9.1% to $314.86 on Thursday.
Rather than bask in victory, Musk used his late-Wednesday conference call with analysts to focus mostly on what’s coming next. He made some bold assertions and prognostications — although he didn’t call any of them promises.
Tesla will fund itself from now on — maybe
The electric-car and alternative-energy company reported a third-quarter net income of $311 million, only the third time it has had a quarterly profit since its initial public offering in 2010. Free cash flow was positive too, at $881 million. Musk said Tesla intends to keep its numbers in the black from here on — but he left himself some wiggle room.
“We expect to again have positive net income and cash flow in Q4,” he said. “I think we can actually be positive cash flow for all quarters going forward, leaving aside quarters where we may need to do a significant [debt] repayment; for example, in Q1 next year. But I think, even in Q1, I think we can be approximately flat in cash flow by end of quarter.”
Because it plans to fund its growth with cash from sales of its Model 3 sedan, Tesla doesn’t intend to raise new rounds of debt or equity, Musk said.
“We do not intend to raise equity or debt, at least that is not our intention right now,” he told analysts. “That may change in the future, but the current operating plan is to pay off our debts and not to refinance them, but to pay them off and reduce the debt load and overall leverage of the company.”
The $35,000 Model 3 will be ready within six months — probably
Musk has long trumpeted a base price of $35,000 for the Model 3, which could be reduced to $25,000 with federal and state consumer rebates. But a Model 3 can’t be had for a base price of less than $46,000 and the average selling price of the Model 3s delivered in the third quarter — 55,840, three times as many as in the previous quarter — was $59,000, according to Bernstein Research. That’s great for profits but not so good for customers who laid down deposits for the promised low-cost version.
Musk said the $35,000 car, with a lower battery range, can’t be made profitably now.
“Our goal really is to make electric cars that everyone can afford, not to sort of mine high-option-value cars,” Musk said on the conference call. “If we could produce the $35,000 car today, we would do it. We need more work. There's more work to do before we can make a $35,000 car and have it be part of the gross margin [that is, a moneymaker]. We're probably less than six months from that, but that's our mission.”
Tesla could sell up to a million Model 3s a year — in the long term
Model 3 sales rocketed this year. Tesla has delivered more than 82,000 of the sedans so far, and Musk indicated the year-end figure will be 138,000 or more. But that’s just the start, he told analysts. Tesla plans to begin selling the car in Europe early next year and in Asia by the end of 2019, he said. The company is trying to find enough money to eventually start building cars in China.
The potential for worldwide demand for Model 3 cars is “anywhere from 500,000 to 1 million units a year, long term,” he said. The capacity of Tesla’s assembly plant in Fremont, Calif., now producing 4,000 to 5,000 Model 3s a week, can be expanded to 7,000 to 10,000 a week at some point, according to Musk, “and then, I don’t know, 5,000 to 8,000 in the rest of the world. Something like that. This is a guess.”
Solar roof is set for volume production — sometime in 2019
A month before shareholders approved Tesla’s merger with solar panel installer SolarCity in 2016, Musk used the old “Desperate Housewives” television set at Universal Studios Hollywood to showcase a new product: tiles that function both as solar panels and as roofing, eliminating the need to attach clunky solar panels to existing roofs. The company began taking orders — with $1,000 deposits — the following May.
Two years after the showcase, Musk told analysts Wednesday that the product is still being refined and that it could take another year before Tesla starts making the tiles in commercial volume.
The company will “start getting into volume production of the solar tile roof next year,” he said. “That's quite a long development cycle because anything that's roof has got to last 30 years. So even if you do accelerate lab testing as fast as possible, there's still a minimum amount of time required to do that, and there's a lot of engineering that goes into how do you put on the solar tile roof and not be really labor-intensive in doing so. So there's a lot of engineering, not just in the tile but in the way it's done.”