Shares in electric car maker Tesla soared by more than 26 per cent in the after-market in the US on Wednesday (Thursday Australia time) after the company stunned market doubters by delivering a better than expected profit and announcing it was ahead of schedule on both its Shanghai giga-factory and production plans for the Model Y.
Tesla’s profit for the third quarter was relatively small – net income of $US143 million – but it beat analyst forecasts, doused fears of yet another loss and allowed the company to declare it had “turned the corner”, with record deliveries, costs under control, and revenue boosted by the sale of “emission credits” to other car makers struggling with the transition to electric.
Its cash position looks better, and while it wouldn’t rule out future losses as new models are rolled out – The Model Y, the Tesla ute, and the Tesla truck – it could be that the really hard part is over.
So much so that Tesla gave some insight into its longer term plans, including its goal of selling some 20 million electric cars a year – enough to replace 1 per cent of the global car fleet every 12 months – and to also emerge as a “giant distributed global utility” through its battery storage and solar products.
To give those car sales figures some context, it would be 55 times Tesla’s current production, twice the production of the current leading global car seller, Toyota, and more than one-fifth of total global car sales.
CEO and co-founder Elon Musk reckons that the number of new car sales will jump significantly, because customers will not just be looking to replace their cars, they will be looking to jump to more interesting products, like they did with flat-screen TVs.
“We want Tesla volumes to get to the point where it is replacing 1 per cent of global fleet over time,” Musk told an analysts briefing. “That’s 20 million vehicles a year….. I do think demand for new cars will rise as the world transitions away from internal combustion vehicles.”
To get there, Tesla will need to roll out more “giga-factories” like it is doing in Shanghai, which Musk says is nearly ready for production and which has been built in record time for a factory of its size. He says this will be the template for future “giga-factories” and Tesla will announce the location of its first European giga-factory by the end of the year.
The early finish of the Shanghai facility also helps Tesla bring forward production of its next EV, the Model Y SUV version of the best-selling Model 3. Musk says he has taken the first vehicles for a drive and he is convinced they will outsell all previous Tesla models – the S, 3, and X – combined.
Musk also says the company will unveil later this week (Friday, Australia time) the latest version of its “solar tile”, an integrated panel that Musk says the company has finally “got it right”. On top of that, solar module sales rose 50 per cent in the last quarter, and energy storage rose 15 per cent.
Musk repeated his previous claim that the “energy” part of the business will grow to be as big, if not bigger, than the automotive part, and Tesla aimed to become a “giant global distributed utility”.
“I expect Tesla Energy (solar and battery storage) to be the same size as the Tesla automotive business,” Musk said. “It could be bigger. … certainly of a similar magnitude.”
He added that the Tesla solar and battery division was the least appreciated part of the business, which may be understandable given it had to throw all its resources, last year, at solving its Model 3 production line problems, without which Musk said the company would have failed.
“We stripped Tesla Energy of engineering and other resources, including the production line,” Musk said. “Now that Model 3 production is in a good place and headed to a great place, we have restored resources to Tesla solar and storage.
“There is going to be really crazy growth for as far into the future that I can imagine,” he said. “We had to do Model 3, otherwise Tesla would not have survived.”
Indeed, the challenge of Model 3 “production hell”, and lingering concerns about its cash position, as well as the weight of short-sellers, pushed Tesla’s price down by nearly half earlier this year to less than $US200.
But they have now rebounded. In the official “aftermarket” on Wednesday, Tesla shares soared another 26 per cent to more than $US300, taking its share price to its highest level since early February and restoring its market capitalisation to more than $US50 billion.
That will be a big blow to the company’s short-sellers, and industry rivals, who had either bet or hoped that Tesla would fail, or struggle to survive, and that the EV-revolution that it has inspired might slow down long enough for the legacy car makers to take a deep breath, consider their next move and try to catch up.
Most major car manufacturers are committing to rolling out electric versions of their fleets, but are still uncertain how they are going to effectively manage the transition from petrol and diesel cars to electric and hybrids, and all that entails on their legacy investments and business models.
Musk, however, remains several steps ahead. He expects a “useable” version of full self driving to be ready by the end of this year, and a version ready for regulatory review to be available by the end of next year.
That, he says, will turn the industry on its head again, compounding the shift from internal combustion engine vehicles to electric, and now to self driving and robo-taxis.
“”That transition, that flipping of the switch from a car that is not a robo-taxi to one that is … will be biggest step change in asset value in history by far,” said Musk. And it may not just apply to individual Tesla cars, but the company itself.
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