Electric cars maker Tesla reported third-quarter earnings and revenue that handsomely beat analyst forecasts after seeing ‘substantial’ growth in vehicle deliveries, lifting the stock more than 3% in after-hours trading, implying a $436 level.

In what one commentator called its ‘best quarter in history’, this was the fifth consecutive quarterly profit on record revenue of $8.77 billion, underlining that Tesla has made substantial progress over the last year.

Revenues rose almost 40% thanks to record vehicle deliveries and net profit jumped 130% to $331 million thanks to margins in the core automotive division leaping 483 basis points to 27.7%. Earnings per share (EPS) came in at $0.76.

Analysts had anticipated EPS of $0.55 on revenue of $8.26 billion.

AFFORDABLE MODEL SWITCH

Margin growth topped estimates even as vehicle average selling price declined slightly compared to the same period last year, as the automaker shifted focus from the more upmarket S and X models to the more affordable Model 3 and Model Y.

Tesla Model 3 refuelling

The electric car maker, one of the most popular stocks with ordinary investors both in the US and here in the UK, also affirmed its target to deliver half a million vehicles by the end of this year, a goal that will require it to significantly ramp up vehicle sales in the fourth quarter.

But before anyone gets carried away with this apparent victory for ‘green’ machines, without huge regulatory credits sales, that $331 million net profit would have been entirely wiped out.

Regulatory credits are given to Tesla because of the clean, green credentials of its cars (and batteries). The company is able to sell these to other automakers, like Toyota, Ford and Volkswagen, who still sell millions of dirty fuel, mass market motors.

Sales of these pollution tokens totalled $397 million during the quarter, so without that revenue, Tesla would not have made any profit at all.

COMPETITION INTENSIFYING

Not that this should undermine the longer-run investment narrative, but it is worth knowing that as more electric vehicles hit the roads from mainstream carmakers, these emissions credits are expected to dry up, making unit output still fundamentally vital to the story.

‘The company is still valued incredibly richly, like it’s operating in a vacuum, yet competitors are working furiously to catch up,’ said Roth Capital Partners analyst Craig Irwin, via Reuters.

More than 400 new electric vehicle models are pencilled in to hit roads by 2024, according to forecasts. Tesla will have to come good on production, delivery and battery efficiency targets to stay ahead.

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Issue Date: 22 Oct 2020