Tesla Inc (NASDAQ:TSLA) shares rose on Thursday after the firm posted its fifth consecutive quarterly profit on record revenue after-hours on Wednesday, beating analysts’ estimates thanks to an increase in electric vehicle deliveries.
The Nasdaq-listed group’s revenue rose to $8.77 billion, up from $6.30 billion a year earlier above consensus expectations for $8.36 billion. Excluding one-off items, Tesla posted a profit of 76 cents per share and net income of $331 million, or $874 million excluding stock-based compensation awards given to CEO Elon Musk.
In early morning trade in New York, Tesla shares added 5% at $427.60.
Revenue from the sale of regulatory credits made up $397 million of revenue, without that Tesla would not have achieved a profitable quarter. So far this year, regulatory credits account for $1.18 billion, or 7% of Tesla's total automotive revenue.
Pollution credits became a more meaningful source of revenue for Tesla about a year ago when California and other US. states increased the mandatory share of zero-emission vehicles sold per manufacturer. As competitors begin selling more electric vehicles, that revenue is expected to dry up.
The electric car maker also affirmed its target to deliver half a million vehicles by the end of this year, a goal that will require it to significantly ramp up vehicle sales in the fourth quarter.
Tesla said it had the capacity installed to produce and deliver 500,000 vehicles this year, but added that achieving its goal has become more difficult.
Tesla does not break out regional sales, but Reuters said data from China’s auto industry association, CPCA, showed Tesla Model 3 sedan sales remained roughly flat from July to September. Overall, Tesla sold around 34,100 Shanghai-made Model 3s in the third quarter.
Tesla said Model 3 production at its Shanghai plant has increased to 250,000 vehicles a year, its targeted production rate.
The group is building additional vehicle and battery plants in Berlin, Germany, and Austin, Texas, to ramp up production of existing vehicles and launch new models, including its Cybertruck and Semi truck. Production at the German factory is expected to start in 2021.
Robust progress in both production and deliveries
Commenting on the electric vehicles maker’s results, Nicholas Hyett, equity analyst at Hargreaves Lansdown said: “Tesla had already reported robust progress in both production and deliveries in the third quarter, which means the focus going into these results was pricing and margins. We knew Tesla had trimmed pricing on some of its more expensive models as it looks to hit its 500,000 delivery target this year, and striking the right balance between price and volume is crucial.
“The market was expecting substantial growth in earnings per share and free cash flow, and Tesla has more than delivered on both. Increased regulatory credits account for a portion of that, and whether that’s a sustainable revenue source long term has been questioned in the past. However, there are also very real improvements in operating performance.
He added: “Teslas remain a luxury item for most consumers, and selling big ticket luxury items in the midst of a global economic downturn is a challenge. The fact Tesla has cut prices is testament to the difficulties it faces in demand, and management have themselves acknowledged that full year production targets are now more difficult to achieve.
“Longer term Tesla also faces an increasingly challenging competitive environment – as established automotive groups look to close the gap on their upstart rival. That’s might not be a problem were it not for Tesla’s share price. As the world’s most valuable car company by market capitalisation Tesla’s current price builds in a massive eventual market share. Fending off companies that have been manufacturing cars at industrial scale for years, as well as overseas start-ups, will be a big ask when the giants of the industry start to put R&D budgets to work on closing the electricity gap.”
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