Tesla reports first quarterly profit in more than three years

[mitchellh]

Really great news! But something that shouldn't be overlooked is the discounts they gave in Q3 to push deliveries up.

First, those that know me know that I am a Tesla FANATIC. My girlfriend once challenged me to not talk about Tesla (motors, energy, something) for a 24 hour period. I dunno if I've ever done that honestly. I'm also an owner (no surprise given my fanaticism, lucky to be able to afford one). And I also own some TSLA.

Elon sent a company-wide email in Q3 to push sales to show profitability. I don't think its a fluke but they did something they never really do to help reach this number: they offered significant discounts on vehicles (new, pre-owned, showroom). Like, really big discounts (relative to the price of the car).

That certainly helped. Elon also sent an email at the start of Q4 that NO MORE DISCOUNTS are allowed. So I'm really very interested to compare Q3 to Q4 when that comes.

I also happen to know a lot of the people who bought a heavily discounted Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla announced the new Autopilot hardware (that isn't retrotfitable on old vehicles). If you did your homework on Tesla though, this wasn't a surprise. It was expected that Tesla would make some big announcement to spur Q4 sales especially after Elon said there wouldn't be any capital raises in Q4 while he expected to hit Q4 numbers. You generally can't do that without some big news.

Just wanted to color this news with that. I'm still very excited!

[usaphp]

> "I also happen to know a lot of the people who bought a heavily discounted Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla announced the new Autopilot hardware (that isn't retrotfitable on old vehicles). "

Wow I guess this is the best proof of how Tesla is really changing the way auto owners think, this is something that wasn't unthinkable before Tesla and their over the air updates. Can you imagine a BMW owner complaining that his 2015 model does not have stuff that new 2017 models will get??

[secabeen]

>Really great news! But something that shouldn't be overlooked is the discounts they gave in Q3 to push deliveries up.

Elon stressed in the call that they did not give significant discounts, and the few that did happen were not to be repeated.

[ebalit]

Did the Q3 email say that it was to boost sales to show profitability?

I think it's fair to assume that they discounted the price because they were close to announce an "hardware" update.

[briholt]

Along with discounts, it's worth mentioning there were also some accounting changes in Q3 and they cashed in all of their ZEV credits for the year. So the profit didn't come easy.

[enimodas]

How do significant discounts create more profitability? Isn't that like "we lose money on every sale, but make it up in volume."?

[samfisher83]

If that was the case why did their gross margins also go up?

[briantmaurer]

"My girlfriend once challenged me to not talk about Tesla (motors, energy, something) for a 24 hour period. I dunno if I've ever done that honestly. I'm also an owner (no surprise given my fanaticism, lucky to be able to afford one). And I also own some TSLA."

I talk about Tesla a ton as well. My GF is similar, but with dogs. We made an agreement that whenever I talk about Tesla I have to replace 'Tesla' with 'dog'. She does the reverse.

Let me tell you, there is this new dog, it is so fast. And this dog has a low center of gravity which is great for handling. The craziest thing is that this dog can go from 0-60mph in just 2.8 seconds, it is ludicrous!

[topbanana]

Out of interest, what levels of discount were on offer?

[aidenn0]

You're telling me I could have gotten a steep discount on an S in Q3? How big a discount are you talking about; I've avoided test-driving one because I don't want to drop that much cash on a car.

[matt4077]

I don't see how a discount changes their profits(!) dramatically – especially considering Tesla does its accounting on an accrual basis. It's perfectly possible (and actually wanted) that someone walks onto a car lot with a fat bundle of cash, uses it to buy a car, drives off – and the whole transaction didn't change profits at all.

[guiomie]

If the discount is what brought profitability, than wouldn't this mean the car is mispriced?

[nodesocket]

Nice writeup. I do think this quarter is a bit misleading because of the 139million emission credit. Howerver, I believe they've done just enough to move the needle and support investor confidence.

By the way, huge fan of HashiCorp Mitchell. ;-)

[smtheard]

Hah! How random to see someone I used to play warcraft on hackernews posting about TSLA, what up mitch.

Totally agree with you on this, long elon musk is always the play.

[dylanz]

My girlfriend also told me to stop talking about Tesla. She would actually get angry when I started talking about Tesla news :(

[harryjo]

That sounds like extreme short-term thinking that is used to fool investors and partners until the gig is up next quarter.

[revelation]

They always do a "end of quarter push" of sorts. It's the terrible reality of being a publicly traded company where a few discrete points in time decide the up and down.

Presumably that is also why Elon doesn't want SpaceX to go public. That kind of push could easily end in a giant fireball there.

[shasheene]

The Economist recently did a good article on the financing of Elon Musk's companies that flew under the radar of Hacker News that probably warranted further discussion [1] [2]. (Though the author of that piece completely misses the relative importance of each company to Musk, suggesting "he could try to sell [...] SpaceX, through gritted teeth, to a defence firm")

It's unfortunate there's a bit of a reality distortion field around discussion Elon Musk's companies sometimes. Maybe because everyone wants his companies to succeed...

[1] http://www.economist.com/news/business/21709061-entrepreneur...

[2] http://www.economist.com/blogs/economist-explains/2016/10/ec...

[RivieraKid]

Related, at the beginning of Q3 Elon Musk sent email to employees urging to cut costs:

> I thought it was important to write you a note directly to let you know how critical this quarter is, The third quarter will be our last chance to show investors that Tesla can be at least slightly positive cash flow and profitable before the Model 3 reaches full production.

[simonsarris]

Direct link to the letter: http://files.shareholder.com/downloads/ABEA-4CW8X0/310041501...

> Total Q3 GAAP revenue was $2.30 billion, up 145% from Q3 2015, while total Q3 gross margin was 27.7%, compared to 21.6% in Q2. Total automotive revenue was $2.15 billion on a GAAP basis, up 152% from Q3 2015. Our final Q3 delivery count was 24,821,over 300 more than the estimated delivery count we shared on October 2nd. Deliveries increased 114% from the third quarter of 2015, and was comprised of 16,047 Model S and 8,774 Model X vehicles. In addition, 5,065 vehicles were in transit to customers at the end of the quarter. These vehicles will be delivered in Q4.

[antimatter]

One thing to note, I have a few friends who work at Tesla service centers. They cut A LOT of corners when it comes to service to show profits this quarter. For example, for the location that one of my friends works at (which happens to be one of the busiest locations in Southern California), they sold almost every single loaner vehicle as a used car.

[rascalpenguin]

I imagine this is because the majority of revenue is spent on growing the buisness, rather than going into profit (As profit = revenue - expenses). As Tesla still has a lot more space to grow. Same method Amazon did until recently for years.

[matt4077]

Yes, but note that a lot of investments can be made without reducing profit.

"Expenses", in this sense is not "cash out". When you buy a building, you're just moving value from one store to another (cash -> assets). Only the deprecation (something like 5% p.a. for a building) has an impact on profits.

(although, for technology companies, investments often hurt profits more than for more traditional companies, mainly b/c typical tech investments are hard to value accurately and therefore deprecate immediately or faster – self-created IP as one example)

[sova]

Excellent! Thank you for pointing that out. "Profit" is a comical term, how can we measure the net savings for humanity-at-large from such endeavors?

[toomuchtodo]

SCTY acquisition is locked up.

EDIT: Elon just said on the investor call "Our current plan requires no capital raise whatsoever for the Model 3 production. Solar City will be neutral to cash contributor in Q4.

[pilom]

I'm not sure it does. All it shows is that Tesla, may at some point in the future be consistently profitable. It doesn't change anything about the prospects of SolarCity to be consistently profitable and if I were a Tesla owner that's what I'd want to see, getting more value than I put in.

[generj]

Most impressive here is a 70% increase in production.

Note that this occurred while Model 3 production is still starting.

[11thEarlOfMar]

The biggest news in this release is gross margin.

Gross Margin Jumped from 26.7% in Q2 to 33.2% in Q3.

For reference, MRQ,

GM gross margin: 13.9%

Toyota: 23.6%

VW: 19.9%

Granted, those are not luxury auto makers, but Tesla is more profitable on a gross margin basis. That margin fuels everything from cash flow to R&D spending. 33% for an automaker is huge.

[vvanders]

Yup, and as battery prices drop those margins are going to get even better(although I doubt we'll see the same level on the Model 3).

[ceterum_censeo]

Is the federal EV tax credit a component of the margin calculations?

[dwills]

Another take on the Tesla financial story:

http://www.zerohedge.com/news/2016-10-26/tesla-earnings-smas...

[forgetsusername]

Cashed in a large amount of ZEV credits, for a one-time revenue bump of $140MM. Excluding that, GAAP loss was $117MM. Big increase in accounts payable. But, all things considered, that's not bad.

[phrygian]

Can someone explain what this[0] means? It would seem that when you buy the car, you don't own it after all.

[0] http://www.huffingtonpost.com/entry/tesla-self-driving-car-n...

[greglindahl]

When you buy a lot of computing equipment, there's a clause in the contract saying that you can't use it to control a nuclear power plant. Do you own the computer?

[gubby]

At least in the UK, such a term would have to be brought to your attention before the sale, very clearly, for it to be part of the contract. Writing that in the manual would have no effect.

[erikb]

It may even be a bad things if they have profits considering the kind of revolution they are attempting on the car industry. I hope though, that it means things went better for them than expected.

[justinzollars]

Great news! But not a surprise considering the great people who work there.

[yladiz]

I'm impressed and skeptical of the substantial increase in production. A 70% increase in production in one year would likely require substantial changes in the production stages. Hopefully Tesla didn't cut any corners to hit this production number; I'm hopeful that they just scaled back their production initially and now show their "full potential", or added a lot of new machinery in their production line(s). Maybe they will reach the 500,000 target.

[tschellenbach]

I've been reading the book about Elon Musk, great read. This is all the more impressive considering all the stories of times they almost went bankrupt.

[ams6110]

Amost (or actually) going bankrupt is normal (or at least, not unusual) for entrepreneurs.

[q-base]

Would like to know which one. Would like to read a book about him but just not sure whether any of the currents are any good or just put out there to ride on his current fame.

[johnnydoe9]

The Ashlee Vance book? It's been on my to-read list for a while

[tn13]

Good for Tesla. It now only needs to reduce its dependency on government dole to kill the rest of the auto industry.

[matchagaucho]

Curious to understand how Model 3 deposits are reported in financials. Deferred revenue?

[ryanmarsh]

Why would they do that? Why post profits?

[sien]

November 17 vote to approve Solar City purchase. Solar City has Musk's cousins with stakes worth millions.

http://www.bloomberg.com/news/articles/2016-10-26/the-goldma...

https://www.bigw.com.au/product/fisher-price-keyboard-mat/p/...

[mikeash]

To show that they can. Many are (were?) skeptical that Tesla could ever make money, even with healthy sales. The intent here is to increase investor confidence by proving that wrong.