SINGAPORE (Oct 29): With numbers like these coming, you have to wonder why Elon Musk was so vexed by the short sellers. Because, in the same quarter the Tesla CEO indulged in that weird US$420 takeover episode, the electric car company actually generated very good results.
As promised, Tesla generated a GAAP (Generally Accepted Accounting Principles) profit of US$1.75 per diluted share. It also turned in positive cash from operations of almost US$1.4 billion ($1.9 billion), and generated free cash flow for the first time in eight quarters, to the tune of US$881 million. Working capital changes helped some, and capital expenditure was a bit light but still impressive. This enabled Tesla to end September with just shy of US$3 billion in the bank, reversing the steady rise in net debt (see chart).
Higher margins on the Model 3, its mid-sized, luxury, all-electric sedan, provided a significant boost. Even adjusting for the sale of zero-emission vehicle (ZEV) credits — an irregular top-up to Tesla’s earnings over the years — the automotive gross margin came in above 25%. It remains to be seen whether Tesla also sold other regulatory credits; it only discloses those in its 10-Q filing, and they have moved the needle substantially at various points in the past. Still, on the face of it, I estimate it made almost US$5,500 of pre-tax profit on each vehicle. In particular, R&D and selling, general and administrative costs were noticeably held down even as revenue jumped.