[ad_1]
If Elon Musk was feeling angry at gloat on Wednesday after Tesla's surprise swing into profit, he certainly did not show it.
In a quarter when most analysts still expected red ink, the electric carmaker came up with a $ 312m net profit-its first two years ago to launch and ramp up production of the all-important Model 3.
Since then, it has burnt through $ 6.2bn of cash in the form of operating losses and capital spending. But this quarter the outflow ended. Tesla produced almost $ 900m in free cash flow, even after $ 510m of capital spending, a much bigger turnround than investors had expected.
It was a powerful statement on the wallet and predictions of eventual bankruptcy for much of its life. Tesla's stock jumped 10 percent on the news, taking its gains this week to 22 percent.
For Mr Musk, the mood swing represents a degree of vindication – particularly after a recent, self-induced crisis.
The stock price, however, has yet to get back to his level in August before Mr Musk shot himself in the footsteps by claiming he had the money to buy buyout. Also, the last quarter still open the key question facing the company: Can it make a profit from a true mass market electric car?
Mr Musk has grown to be more successful in this regard than in the past. Fighting back on Twitter and shutting down questions on an earnings call with analysts 6 months ago – capped by his tweeted claim.
On Wednesday, by contrast, we have discussed the latest results and responded cautiously to questions from analysts.
Toni Sacconaghi, the analyst whose financial interrogation six months ago led Mr Musk to denounce "boring bone-head questions" from Wall Street, appeared set to needle the Tesla chief again, it was possible to make a profit Model 3 as selling prices fall towards $ 35,000. That is the target Mr Musk has set to make it a true mass-market vehicle.
This time, the response could not have been more "Mr Musk said," he's having to dismiss the query with an untypical display of diplomacy.
Yet the question gets to the heart of the challenge that lies ahead.
Until now, an expensive battery pack has kept the lowest price of a Model 3 at almost $ 50,000, though the company brought that floor down by $ 4,000 last week by introducing a shorter range battery with fewer cells in it. Wall Street estimates that self-driving software and other features have cost to $ 60,000, far above Mr Musk's claimed target.
With bumpy first year, this high price has enabled Tesla to bounce into profit. The company generated a gross profit of more than 20 per cent on the Model 3, higher than the 15 per cent Tesla had predicted – though Mr Musk was granted that figure had been conservative.
Next year, things are set to get tougher. Mr Musk said he still plans to drive the price of a Model 3 down to $ 35,000 over the next six months. That would depend on a smaller battery pack, which he said would take a few months to produce in volume.
Tesla must now prove it can turn a decent profit margin at much lower prices. It also faces a more difficult time in the US when the $ 7,500 in federal tax credits for Tesla buyers will start to be phased out.
The start of overseas sales of Model 3 could help. Mr Musk said Tesla would start delivering Model 3 in Europe as early as March, with shipments to Asia shortly after. Tapping high-end buyers in those markets could not be avoided.
Breaking with his usual openness on earnings calls, Mr Musk also refuses to discuss exactly how to increase his production in the San Francisco Bay Area.
Recommended
From the Peak 5,300 Model A week ago, Tesla managed at the end of September, with a "very minimal" capital spending. Lifting it further, to the target 10,000, would suggest a major overhaul of its existing production lines, he suggests. But he added: "We're not talking about massive [capital spending]. "
Local production could start to take some of the strain. Faced with penal tariffs in China, Tesla said it would bring forward plans, with partial local production next year of vehicles sold there. Mr Musk said: "It's going to make cars in California and ship them all to Europe."
Ultimately, he predicted, demand for the Model 3 will be more than 500,000 3 Series that BMW sells every year, and less than the 1m Volkswagen Golfs – a range that still looks daunting compared to the 55,840 the company delivered in the latest quarter .
But with the early production problems apparently, the prices of the world, the prices of the goods, and
"Our goal is to produce cars everyone can afford," he said. "We're probably less than six months from that."
Source link
