Tesla may post profit with Model 3 surge, investors look for more

AFP  File | US officials are investigating whether Tesla misled investors about meeting key production targets for the Model 3 car

AFP File | US officials are investigating whether Tesla misled investors about meeting key production targets for the Model 3 car

Tesla delivered 55,840 Model 3s in the third quarter, worth more than $3 billion in revenue at $59,000 per vehicle - the average price paid without add-ons.

In response to the WSJ report, Tesla said Friday that it had not received a subpoena from the U.S. Department of Justice regarding Model 3 production numbers.

It's only the third time that Tesla has posted a quarterly profit in its eight-year history as a public company and the first time in two years. We can expect Tesla to ramp up spending for one or more of these products in the next few months, which will create a drag on free cash flow. Bloomberg ran a titled "Tesla Doesn't Burn Fuel, It Burns Cash"-complete with a graphic of Musk throwing dollar bills into a pair of Boring Company flamethrowers". In a conference call with analysts late Wednesday, Elon Musk predicted Tesla would continue to be profitable from this point forward, reports CTV News Canada. In reality, Tesla ended up producing only 2,700 Model 3's for all of 2017.

Last month, Tesla settled a civil lawsuit by the Securities and Exchange Commission over tweets by founder Elon Musk that funding was in place to take the company private.

Throughout the quarter, average Model 3 production checked in at 4,300 units per week.

For the same period a year ago the company reported a loss of $619 million. CEO Elon Musk called the profit - which he had promised shareholders earlier this year - "truly historic". Those issues put in doubt the company's future, which hinged on its promise to mass-produce the Model 3, a relatively affordable electric sedan, on a large scale. "Profitability is improving at a rate where the company is on track to generate enough cash to meet its $1.7 billion debt obligations".

Musk meanwhile will be replaced as Tesla's chairman imminently after a ruling from the SEC that also saw the South African-born entrepreneur hit with a fine of $20 million (£15.6 million). But even investors who've been among the most vocally bearish about the company have started to change their view as Musk lures away buyers of Camry and 3-Series sedans.

While the third-quarter results were definitely "impressive", and spurred at least one upgrade to outperform at Wolfe Research, most analysts questioned whether the profit and robust cash flow were sustainable and can be repeated next quarter. TSLA also claims to have no plans for a capital raise; however our view on a Q4 or 2019 capital raise is unchanged as Tesla will need to invest to expand Fremont production, build a China factory, ramp Model Y and expand infrastructure. As for cash flow, Tesla came out smelling like a rose. Accounts payable-money Tesla owes to its suppliers-ballooned from $2.4 billion to $3.6 billion over the past year.

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