The Tesla share price resumed its 2020 rise again with a 2.7% gain in afterhours trading yesterday after the electric vehicle maker published quarterly results that showed profits had risen to $331 million from $143 million a year earlier. Revenues were also up to $8.8 billion from $6.3 billion over the three months to the end of September.
It’s now five consecutive quarters of profitability for Tesla after years of operating at heavy losses had convinced many on Wall Street the company would struggle to stop burning through investor cash and turn a strong brand into a strong business. The company also retained its commitment to hitting a target of delivering 500,000 cars in 2020, despite the fact it warned the challenge had become “more difficult” as a result of its main California production facility being forced to close for a few weeks early in the Covid-19 pandemic.
In order to hit the 500,000 threshold, Tesla will have to deliver another 181,020 cars between now and the end of December. That involves smashing its previous delivery record of 139,593 vehicles over a quarter, set in the quarter that has recently concluded, by 30%.
Analysts are sceptical over how possible it will be for the company to meet the target, but having maintained it yesterday, the presumption must be that a plan is in place. And after years of falling short of hitting targets considered overly ambitious, CEO Elon Must has had a recently strong record of coming through and delivering.
If he manages this time, markets will surely further reward a company that has had a remarkable recent upturn in fortunes, reflected by a share price that has rocketed by over 400% in 2020. At its high point on August 31st, the gains for the year were 495%. Over 12 months, Tesla’s value is up almost 900%.
One factor that should, however, give investors pause for consideration is that Tesla’s profitability over 4 of the last 5 quarters has been achieved thanks to it selling hundreds of millions of dollars’ worth of ‘green’ credits to other automakers. Manufacturers of petrol and diesel cars have emissions targets that have been set for them by regulators.
In order to meet those targets, they are being forced to trade green credits, buying them from other manufacturers that have a surplus. Because Tesla only manufactures full electric vehicles, it is able to sell almost all of its own green credits allocation to competitors. Over the third quarter, Tesla brought in a total of $397 million from those sales – more than its profits for the period. Without them subsidising its current manufacturing costs, it would not have been profitable.
Tesla has, however, always maintained that it will only reach sustainable profitability when it is able to bring down the cost of its basic EV models to a level that is competitive with mass market petrol and diesel alternatives. Currently the cheapest Tesla, the Model 3, retails at $35,000 for an entry-level model. Its aim is to bring that down to $25,000 within 3 years, as well as making it fully self-driving.
A Tesla company statement released yesterday with its quarterly results read:
“We have the capacity installed to produce and deliver 500,000 vehicles this year. Delivering half a million vehicles in 2020 remains our target. Achieving this target depends primarily on quarter-over-quarter increases in Model Y and Shanghai production, as well as further improvements in logistics and delivery efficiency at higher volume levels.”
Production at Tesla’s new Shanghai factors is being ramped up and new plants that will manufacture both batteries and Tesla vehicles are under construction near Berlin and in Austin, Texas. Mr Musk said last month that he believes Tesla will be capable of manufacturing up to 20 million electric, self-driving vehicles a year by 2030.
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