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Tesla beats the Street and delivers; posts profit and ramps up Model 3 production

The new results give embattled CEO Elon Musk credibility and sent the company’s share price higher
electric car
Baird analyst Ben Kallo argues that the narrative around Tesla is changing as the car maker proves it can stay profitable

Tesla (NASDAQ:TSLA) beat the street on Wednesday and delivered third-quarter earnings that drove a profit as it said it ramped up production of its Model 3. 

The new results helped give embattled CEO Elon Musk credibility and sent the company’s share price higher in extended trading.

Tesla announced a net profit of $312 million, its largest ever. The company's stock shot up around 10% during after-hours trading and held steady to hit $319.00 before Thursday’s opening bell.

Free cash flow of $881 million was helped by a surge of new production of the Model 3. 

That money “should help bolster the balance sheet and mitigate concerns over cash burn,” wrote Baird analyst Ben Kallo in a note to investors.

Tesla’s gross margin of 20% for its Model 3s also exceeded Kallo’s expectations and the analyst remains bullish on the electric car maker after its “blow-out” quarter.

“Management indicated it believes Tesla can be sustainably profitable and cash flow positive moving forward, which we think could help flip the narrative,” Kallo wrote.

“We expect share to trade higher following the blow-out quarter and remain buyers,” he added.

While still below the production target it set for June of 5,000 Model 3s per week, the roughly 4,300 Model 3s the company is now averaging per week boosted results.

Baird bullish post earnings

Tesla’s plans to begin portions of Model 3 production in China next year and its introduction of the Model 3 in Europe, which is expected early next year, should also pump up interest in its cars.

 The Palo Alto, California, automaker reported net income of $312 million in the third quarter, a year after reporting a net loss of $619 million.

READ: Short-seller Andrew Left stands by his newly revealed Tesla long: exclusive interview

"Q3 2018 was a truly historic quarter for Tesla. Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume," CEO Elon Musk said in a letter to investors.

Keeping a $411 price target and an Outperform rating on the stock, Kallo argues that the narrative around Tesla is changing as it transitions to becoming sustainably profitable.

“Positive estimate revisions could be on the horizon,” Kallo argues.

Adjusted net income was $2.90 a share. The earnings exceeded Wall Street's expectations for a loss of $0.19 per share.

Earlier this week, short-seller Andrew Left moved long on the electric-car maker’s stock ahead of its quarterly results. 

"Citron is long Tesla as the Model 3 is a proven hit and many of the TSLA warning signs have proven not to be significant,” wrote analysts from Citron Research, which Left founded.

“What has changed?? Plain and simple—Tesla is destroying the competition,” they added.


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