Tesla Inc. stock jumped more than 12% late Wednesday after the Silicon Valley car maker reported a surprise third-quarter GAAP as well as an adjusted per-share profit and sales that came in above Wall Street expectations.
The quarter was “truly historic,” Tesla TSLA, -1.92% executives said in their letter to shareholders.
“Sufficient Model 3 profitability was critical to make our business sustainable – something many argued would be impossible to achieve,” Tesla said in the letter, in a jab at its many critics. “We can’t thank you enough for your support. We would not have achieved this historic quarter without it.”
Tesla said it earned $311.5 million, or $1.75 a share, in the third quarter, versus a loss of $619.3 million, or $3.70 a share, in the year-ago period.
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The Model 3 “was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume,” it said in the letter. “With average weekly Model 3 production through the quarter (excluding planned shutdowns) of roughly 4,300 units per week,” the company achieved the GAAP profit.
Adjusted for one-time items, the company earned $516.2 million, or $2.90 a share, versus an adjusted loss of $488.5 million, or $2.92 a share, a year ago. Revenue rose to $6.92 billion from $2.98 billion a year ago.
Analysts polled by FactSet had expected an adjusted loss of 5 cents a share on sales of $6.1 billion. The stock ended the regular trading day down 1.9%.
“GAAP profitable and free cash flow positive - a feat many doubted (including ourselves) could occur in 3Q18,” analysts at Consumer Edge said in note Wednesday. “Tesla had meaningfully better automotive gross margin and meaningfully lower R&D and SG&A expenses relative to our expectations.”
Hopes were high going into the results, as the company fast-forwarded its usual release schedule by some two weeks and many took that as a sign the numbers were going to be favorable.
Tesla executives will host a conference call at 6:30 p.m. Eastern. MarketWatch will live blog the call.
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Tesla also provided a rare comment on Model 3 reservations. It said that “less than 20%” of the 455,000 reservations it had reported in August 2017 had been canceled. Tesla stopped the reservation systems in July, moving to a direct-order system.
Model 3 production and deliveries are likely to increase in the fourth quarter, and the target of delivering 100,000 Model 3 and Model X vehicles this year remains unchanged, the company said.
Tesla also made a novel push in China.
In order to “significantly increase” the Model 3’s affordability, Tesla said it would “accelerate our manufacturing timeline in China,” aiming to bring portions of the mass-market sedan’s production to China next year. It vowed to increase local sourcing and manufacturing, and said production in China will be designated only for local customers.
Operating expenses are likely to “grow only slightly” in the fourth quarter, Tesla said. Full-year 2018 capital expenditures are seen slightly below $2.5 billion, consistent with prior guidance, the company said. Expenses projections include buying land in China and initial design and other expenditures for a battery factory.
Automobile gross margins hovered around 25%.
Third-quarter results came as Chief Executive Elon Musk has stepped down from his chairman role and made other concessions as part of a settlement with the Securities and Exchange Commission to end charges he misled investors when he tweeted on Aug. 7 he had “funding secured” to take the car maker private.
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Tesla shares have lost 7% this year, compared with losses of 0.7% and 0.6% for the S&P 500 index SPX, -3.09% and the Dow Jones Industrial Average DJIA, -2.41% in the same period.
