Tesla can make profits with Model 3, investors are looking for more

SAN FRANCISCO (Reuters) – Executive director Elon Musk could record a long-promised profit when Tesla Inc (TSLA.O) publishes its third quarter results on Wednesday as the production of the Model 3 electric sedan takes off, but investors will want to know if these results are sustainable.

Tesla is trying to minimize its expenses and revenues, remove jobs and restructure itself, while speeding up the delivery of its new model 3 vehicles to its customers, in order to keep the promise made by Musk in May in the third and fourth quarters.

The results will crown a turbulent neighborhood in which US security officials have accused Musk of fraud for deceiving tweets and forced him to relinquish his role as president in a transaction.

The bears who bet against the company celebrated, until the famous short seller, Citron Research, canceled his trajectory, claiming that the Model 3 was a "proven success".

"While the media focused on the eccentric, bizarre and sometimes offensive behavior of Elon Musk, they did not notice the legitimate disruption of the automotive industry that is currently dominated by Tesla," writes Lemon.

Shares of the Palo Alto, California-based automaker, which fell 15 percent in the past 12 months, rose 0.5 percent on Wednesday.

Tesla has scheduled its publication of its results earlier than usual, probably because it expects to record a profit, said Mainstay Capital Management strategist David Kudla.

The main question for investors will be whether Tesla is cost-effectively building the new model 3, which means that its revenues will increase as the volume increases. Model 3 margins became "slightly positive" in the second quarter, Tesla said after months of manufacturing difficulties.

Tesla delivered 55,840 models 3 in the third quarter, representing a turnover of more than $ 3 billion for $ 59,000 per car, the average price paid without add-ons. This represents a substantial increase over the $ 1 billion in the second quarter.

An increase in sales of the more expensive versions of Model 3, which offer higher margins, will contribute to profitability. The all-wheel drive, high-performance versions help Tesla move closer to its third-quarter margin target of 15 percent for the third quarter, with a 20 percent margin expected for the fourth.

For a graph on Tesla's Balance Sheet and Strategy, click tmsnrt.rs/2PPLXM5.

MODEL AT LOWER PRICE 3

Musk could also ask questions later on Wednesday whether the company will present its long-promised Model 3 model 3, which Bernstein analyst Toni Sacconaghi says is a double-edged sword: if Tesla does not do this, some customers will be angry, and if so, the margins will likely be subject to additional pressures.

Investors are likely to actively look for one-off boosters.

Tesla gets "zero emission vehicle" credits for its electric cars and can sell them to other manufacturers who must meet California's regulatory goals. It may be storing them, since it has only recorded a $ 50 million gain in loans of this type this year, compared to the $ 360 million recorded in 2017.

These credit sales helped Tesla make a profit in the third quarter of 2016, one of two times in recent years.

If Tesla reduces capital spending, research and development on future vehicles or new hires, investors will wonder if this reflects an improvement in efficiency or a delay in necessary expenditures.

Musk has also promised to have positive cash flow and investors will check if its distribution system is improving. Reducing the transit time of cars so that revenues can reach more quickly would shorten the cash conversion cycle, which would increase cash flow.

The CEO said President Tesla does not need to raise new capital. Some analysts have questioned this position, given the financing needs for the many projects on Tesla's radar, including a model Y SUV, a heavy truck and a new factory in China.

The Shanghai Gigafactory, based in eastern China, aims to manufacture model cars 3 and Y, with an annual capacity of 250,000 vehicles, according to a ranking.

Some analysts have estimated that the company would need to raise $ 2 billion by the end of 2018 to finance its operations. Between bonds issued publicly and loans from banks and other entities, Tesla would have about $ 2.2 billion due by November 2019.