Elon Musk puts months of private hell behind him as he and analysts hail a “breakthrough” quarter for Tesla and its ability to redefine the future of transport. Even the skeptics get on board.
Musk, the CEO and founder of Tesla who has fallen foul of regulators and others because of his Twitter activities, unveiled a profit against most expectations, arresting the bleeding of cash, and lighting a fire under the company’s stock, which surged in after-market trade to its highest levels ($US321/share) since he tweeted about plans to take the company private.
The key points of the results were this: Tesla delivered a profit per share (US2.90/share) where most analysts were expecting a loss. It posted free cashflow of $US881million, ending years of outflows (see table below). It produced as many cars (84,000) as it did in the whole of 2016, and produced higher than expected margins (more than 20 per cent) on its “mainstream” Model 3.
Tesla described the result as historic and a breakthrough. Macquarie hailed it as a major turning point, and Bloomberg analysts said the result “blew away” expectations. Musk merely pointed to a new future for road transport and shared mobility, and highlighted just how far the company was ahead of its rivals.
Tesla says it will begin deliveries of the Model 3 to China and Europe early next year, and hopes to have lowered the cost of production enough to make it possible to profitably produce the promised $US35,000 version of the Model 3 within six months. That’s good news for Australian customers who can expect it to start arriving mid-year.
Musk also spoke of the new models that are on the way: He has approved a prototype of the Model Y (a crossover SUV) and production will begin in 2020. The Tesla semi is moving forward, and he is particularly excited by the Tesla pick-up (ute) that he expects will redefine the life of tradies. (See more in our EV-dedicated web-site, TheDriven.io).
Musk talked of “shared electric and autonomous future, where ride hailing and shared cars will become the norm, just like Uber, Lyft and AirBNB.
Musk imagines a Tesla fleet augmented by privately owned Tesla EVs that will provide a pool of shared vehicles – a pointer to the future when many people may not own their own cars, and will just hail an autonomous EV when they need one.
“I do know for sure that Tesla will operate its own ride hailing service, and compete with Uber and Lift directly,” Musk said in the earnings conference call. “We will be able to allow customers to add or subtract their car to the (company) fleet at will. Any customer will be able to share their car.”
Musk says Tesla is now far ahead of other car manufacturers. Tesla is valued at more than $US50 billion, comparable with the biggest US car-makers even though it still makes just a fraction of their production.
But in the categories it competes in, it is riding high. Tesla says the Model 3 is now the number 1 car in terms of sales revenue in the US, and number 5 in unit numbers. Tesla is beating the BMW 3 in Germany, and is more advanced than any other car maker in EVs.
“Although we only sell Model 3, Model S and Model X, our total US deliveries in (quarter three) were on par with total vehicle deliveries made by our long-established premium competitors, each of which has multiple models and a vast network of dealerships,” the company noted.
Musk noted that the Model 3 delivers the most efficiency per kilometre and the lowest cost per kilowatt-hour. “That makes it difficult for other companies to compete with Tesla – we have the lowest cost battery, and most efficient car.”
“We made the investment in the Gigafactory , they didn’t,” Musk said. “We made a lot of effort at making the most efficient powertrains, they didn’t. That is what has put us into such a strong competitive position today.”
Analysts seem to be buying that line, even the contrarians who bet heavily the other way. In one notable back-flip reported this week, Andrew Left from Citron Research, a vocal and long-term Tesla short-seller who had predicted the stock would slump to $US100 a share, said he had changed his position because Tesla was “smoking” the rest of the industry.
“Elon Musk has made such a sideshow of himself that people started to forget about — including myself — the underlying business,” Left said on Bloomberg TV. “It’s a revolution that I actually underestimated — the way people are buying these cars.”
He noted that Tesla is catching customers from the likes of BMW, Mercedes, Toyota and Honda. Musk pointed to an even more notable trend – many customer were paying more for Tesla EVs than they ever had for any other car.
Most buyers had traded in vehicles that had an original price tag of less than $US35,000. Given that the cheapest Model 3 available is $US49,000, Tesla says it appears that the Model 3 will reach beyond the premium sedan market and become a “truly mainstream product.”
Customer loyalty is revealed in other ways. Musk started off the call by thanking the customers who had volunteered their time to help the company meet its delivery targets by the end of the 3rd quarter. “Most competing car companies are weighed down by the cost of dealerships: Tesla delivers to the home. ”
“I’ve never heard of that, where customers volunteered time to help the company succeed,” Musk said. “That’s just amazing. You don’t see that anywhere.”
The EV part of the business is only half the story, however. Legendary US stock investor Ron Baron recently suggested that Tesla could become a $US1 trillion company by 2030, comprised of a $US500 billion electric car division and a $US500 billion battery storage business.
That would be good for shareholders, but also make Musk unbelievably rich. The recent options package that was struck was based on Tesla reaching a market cap of $US650 billion within 10 years, at which point Musk’s own stake would be worth at least $US180 billion and his bonus another $US70 billion.
For the moment, Tesla is pulling in 15 times more revenue from its EV division than it is from its energy storage and generation (solar) business. In the last quarter, energy storage deployments grew to 239 MWh – including household and utility-scale – double that of the same period last year.
It expects the business to grow three-fold in 2018 over 2017, buoyed by the success of its Tesla big battery in South Australia, and other deployments in Australia and elsewhere, and despite price rises and production delays in its Powerwall 2 domestic unit, although it says it is looking to increase that production to address the backlog.
There were no mentions of any other large-scale storage contracts, or of the 1GWh installation that Musk had spoken of previously.