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The biggest delivery of You're hereof (NASDAQ: TSLA) The third quarter results were undoubtedly its unexpected profitability. The company reported a net profit of $ 312 million and a positive free cash flow of $ 881 million, thanks to soaring production and deliveries of the Model 3. so-called ready to be profitable in the fourth quarter.
However, the call for Tesla's results following the publication of its third quarter results also included many points to remember. Management's plans for Model 3 pledged $ 35,000, its expectations for Model 3's application, and an update on how Tesla is considering capital increases were at the heart of the call.
Model 3. Image Source: Tesla.
Why the $ 35,000 model 3 version is not yet available
When Tesla unveiled model 3 for the first time, it promised a version with a starting price of $ 35,000. But the electric car manufacturer has not yet kept its promise.
Of course, management has always intended to enhance the production of the high-end versions of Model 3 and to improve economies of scale before the launch of the vehicle. This does not preclude investors and analysts wondering when the new vehicle will be launched. After all, Tesla eventually wants to sell 500,000 units or more of model 3 a year – and it will reduce the price of the vehicle to achieve it.
Why is the $ 35,000 version not available? The cost of building model 3 is just not yet low enough.
"[I]If we could produce a $ 35,000 car today, we would, said Elon Musk, CEO of Tesla. We need more work, we still have a lot of work to do to build a $ 35,000 car and get a positive gross margin. Tesla is "probably less than six months from [having a positive gross margin on Model 3], that's our mission. "
Specifically, Musk later stated during the conference call that the company wanted the cost of products sold for the base version of Model 3 to be $ 30,000 when it was placed on the market.
High hopes for model 3 demand
Asked about the global demand that Tesla expects for its model 3 as its price goes down, Mr Musk said: "Its volume probably varies between 500,000 and 1 million cars a year." This, of course, represents a huge leap from the current annualized delivery rate of Model 3, which is about 223,000 deliveries. Of course, Tesla has reached this pace with a Model 3 version whose starting price is 49,000 USD.
Musk says it believes that the demand for Model 3 can reach this level because global demand for the same price BMW Series 3 vehicles represent approximately 500,000 units per year. "And overall, we think we have to deal with the BMW 3 Series well. So it makes sense that we wanted to have more production or demand," said Musk.
What about a capital increase?
Now that Tesla is profitable, an analyst asked if Tesla was planning to finance its operations from internal funds and avoid mobilizing capital from external sources. Musk replied:
Yes, that's our goal. We do not intend to raise equity or debt. At least, that's our intention for the moment. You know that this may change in the future, but the current operating plan is to pay down our debt and not refinance it, but pay it to reduce the debt burden and overall debt of the company.
As usual, Tesla seems very optimistic about his future. However, given the recent sharp rise in production and deliveries of Model 3 and the surprising profitability that has proved that opponents are false, investors might consider giving more weight to the company's daring aspirations. .
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