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Surprise: Tesla turns a profit for the first time in three years

Inside Tesla’s assembly plant in Fremont
Inside Tesla’s Fremont assembly plant.
(Russ Mitchell / Los Angeles Times)

No one expected this. Electric car maker Tesla, admired by many, a source of skepticism for others and a money loser for years, reported a profit for its most recent quarter. And it said next quarter is expected to be profitable as well.

It’s the Palo Alto company’s first quarterly profit since the first quarter of 2013. Analysts had expected Tesla to post a loss for the three months ended Sept. 30, with estimates ranging widely.

“On first read, it appears they’re paying closer attention to making money,” said Michelle Krebs, senior analyst at Autotrader. “It’s significant they actually posted a profit. This is a milestone everyone’s been waiting for.”

Tesla has long been a favorite among car fans and tech geeks, but it has struggled financially, leading to frustrations among investors and industry analysts. Like many start-ups, it has chosen to focus on innovation and growth at the expense of profits. But it appears to be adding profit to the mix.

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A near doubling of revenue and a much lower growth in expenses produced the profit of $111.4 million, or 71 cents a share, when adjusted for one-time events. For the same quarter a year earlier, it posted a loss of $1.35 a share.

The actual results “reflect strong companywide execution in many areas,” the company said in a statement.

Tesla shares surged 6% in after-hours trading following the report. During a conference call with analysts Wednesday afternoon, Chairman and Chief Executive Elon Musk trumpeted the results as the electric car company’s “best quarter ever.”

“It’s definitely one of the best moments at Tesla,” he said. 

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Over the last few months, Musk pressured employees to cut costs and push sales to strengthen third-quarter results, and they delivered.

The company said it sold 25,185 cars in the third quarter, with total revenue of $2.3 billion, up 145% from the same quarter last year.

Operating expenses in the meantime rose 33%, to $551,113 from $415,158.

Tesla changed the way it reports its financials this quarter, hewing more closely to standard accounting practices, known as generally accepted accounting principles.

Besides reporting its quarterly numbers, the company said it is on schedule to deliver its mid-market Model 3 by the end of next year and pump out 500,000 vehicles annually in 2018.

Its partially operational $5-billion battery factory in Nevada, known as the Gigafactory, is on schedule as well, Tesla said.

John Murphy, managing director at Bank of America Merrill Lynch, noted that Tesla’s capital expenditures have fallen and are “very impressive to date.” But he wondered whether Tesla can keep a lid on that kind of spending as Model 3 production ramps up.

According to Musk, yes, but not a lot more. Earlier this month, he tweeted that he won’t seek to raise new money this year.

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During the conference call, he went so far as to say that he’s so confident about the company’s financial position that technically, the company doesn’t need to raise new capital at all to fund the Model 3: “Things are looking good.”

He quickly qualified that statement, though, saying a bit more cash cushion might not be a bad thing. There could be manufacturing problems. There could be a global economic meltdown. “Who knows what will happen?” he said.

Thus far, the company has had little trouble raising new investments. It boasts a market value of $30.3 billion and has drawn hundreds of millions in bank lines of credit.

Still, Tesla’s finances and prospects are controversial. Short positions in the company — basically, bets that the stock price will plunge — constitute about a quarter of all Tesla shares.

Stock traders apparently were not expecting a profitable quarter — shares had declined slightly to $202.24 at market close.

Musk also addressed Tesla’s plans to use its network to allow people to rent out their cars when they’re not using them.

“Sometimes it’s been characterized as Tesla versus Uber or Lyft,” he said. “It’s not Tesla versus Uber; it’s the people versus Uber.”

Tesla results next year could include numbers from SolarCity if Musk’s plan to merge the two companies goes through. Shareholders for each company will vote on the merger Nov. 17.

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On the call, Musk indicated that even in the short term, he doesn’t expect SolarCity to weigh Tesla down.

 “I expect SolarCity to be approximately cash flow neutral” into next year, he said.

Musk sees the combined companies as synergistic — one-stop shopping for solar roofs that feed energy into wall-mounted storage batteries that could be used to charge electric cars.

On Friday night, at an event at Universal Studios, he is expected to show off new solar rooftops that he has promised will be as attractive as they are energy-efficient.

russ.mitchell@latimes.com

Twitter: @russ1mitchell


UPDATES:

2:44 p.m.: This article has been updated with comments from Elon Musk.

4:20 p.m.: This article has been updated with additional comments from Musk and a financial analyst.


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