How Tesla Managed Its Second Quarterly Profit Ever

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1st Gear: Tesla’s Q3 Win

Tesla is great at a lot of things, from leading the way in electrification and autonomy to building more hype than we’ve seen around any car brand in decades. One thing it’s not great at, so far, has been posting actual profits. Overhead and production costs for the nascent automaker have been tremendous for years.

Last night, however, Tesla announced a Q3 net income (GAAP) of $22 million, its second-ever quarterly profit as a public company. That’s the first time this has happened since May 2013. Production is up, deliveries are up and revenue is up.


But a major reason this profit happened was a surprise increase in carbon pollution credits, aka ZEV credits, that it sells to other automakers. From Automotive News:

But a significant part of Tesla’s third quarter revenue came from pollution credits it sold to other automakers. In the third quarter, Tesla booked $139 million in those credits, up from $39 million a year ago. The company said it expects revenue from those credits to decline in the fourth quarter.

“New product launches, increased store efficiency and new store openings drove year-on-year order growth,” Tesla said in a statement. “Self-driving hardware and other product enhancements position Tesla for additional market share gains.”

Quarterly revenue more than doubled compared with the third quarter of 2015, coming in at $2.3 billion compared with $937 million.


Still, Elon Musk defended the Q3 win, saying vehicle deliveries and revenue are way up. Via The Wall Street Journal:

“One of the criticisms I’ve seen out there is that perhaps Q3 was at the expense of Q4—this is not true,” Mr. Musk told analysts on Wednesday. The company in the current quarter may be profitable on an adjusted basis and maybe without adjustments, he said. “We are headed to have a great fourth quarter.”

Revenue shot up to $2.3 billion from $936.8 million a year earlier. Tesla delivered 24,821 of its Model S sedans and Model X sport-utility vehicles combined, more than double the year-ago figure.


That story also says Tesla needs about $2.5 billion through the end of 2017 for the Model 3 debut and completion of the Gigafactory in Nevada.

2nd Gear: Good Use Of ‘Phantasmagorical’ 

Tesla’s Q3 win likely won’t silence any critics, especially with the ZEV credits taken into account. One of those critics is ex-General Motors and Fiat Chrysler exec Bob Lutz, who went on CNBC to blast Elon Musk and the company:

“Tesla supporters are like members of a religious cult,” he said. “Just like Steve Jobs was worshiped at Apple, it’s the same way with Elon Musk ... seen as a new visionary god who promises this phantasmagorical future, a utopia of profitability and volume.”

But Lutz contended there’s a big difference. “Steve Jobs delivered and Elon ... hasn’t delivered a thing, except increasingly negative cash flow, and an increasing lack of profitability; more and more capital spending.”

[...] “I just don’t see anything about Tesla that gives me any confidence that that business can survive,” Lutz said, arguing it could ultimately go bankrupt “unless people keep pouring new money in ad infinitum.”


Lutz is severe and probably overly pessimistic, but one has to wonder at what point Tesla will (or can) start posting consistently profitable quarters.

3rd Gear: Volvo’s Doing Great Also

Here’s a nice story for fans of comebacks, Sweden and good cars: on the strength of two big new product launches, the S90 and XC90, Volvo is doing quite well at the moment. Via Reuters:

Volvo Car Group reported a 62 percent rise in third quarter earnings, driven by strong demand for new pricier models that have lifted both sales and profitability, and raised its profit outlook for the full year.

Volvo, acquired by China’s Zhejiang Geely Holding Group Co. from Ford Motor in 2010, said operating earnings rose to 2.07 billion Swedish crowns ($232.5 million) in the quarter from 1.28 billion a year ago.

Gothenburg-based Volvo, one of Sweden’s biggest companies by sales and staff numbers, said it now expected a “substantial improvement” in profits for full year 2016 compared with a previous outlook for an “improvement” over last year.



4th Gear: While Ford Dips

Meanwhile in America, General Motors had an extremely good Q3. The same cannot be said for Ford, which reported a 56 percent decline in third-quarter net income to $957 million. Ouch.


Here’s why that happened, according to Automotive News:

Today CFO Bob Shanks told reporters that the earnings decline in North America accounted for the bulk of the corporate drop. Shanks attributed the North American result to:

The door-latch recall, which will add $640 million in costs this year.

Launch expenditures for F series heavy-duty trucks.

“Normalization” of F-150 pickup revenues. Shanks said that in the third quarter of 2015, having recently hit full production, Ford was selling a rich mix of F-150s primarily through retail. With an increase in fleet sales this year, the mix has become less lucrative, he said.

“Those three things explain entirely the change in North America, which essentially explains the change in the company,” he said.


Recalls have proven to be a repeated profit killer for several companies, lately most notably Fiat Chrysler.

5th Gear: Screaming Quiet Luxury In Your Face

Speaking of Ford, the company is set to debut the 2017 Lincoln Continental at a time that’s not been especially kind to sedans, especially large ones. But the Continental is a flagship car for Lincoln, and they’re rolling out the carpet to journalists testing the car. (We were not invited because we’re mean.)


The car started rolling off the assembly lines “quietly” in August but is having its media debut now. Via The Detroit News:

The stunning Continental debuted to reporters from across the globe here this week at the posh Bel Air Hotel. The resulting stream of reviews, pictures and video comes as print ads shot by renowned photographer Annie Leibowitz are popping up in high-end publications. That will be followed by a year-end TV campaign featuring Lincoln’s mumbling, finger-rubbing spokesman Matthew McConaughey. Saturday Night Live parodies are sure to follow.

“The McConaughey ad is shot and in the can,” smiled a Lincoln spokesman.

Lincoln says the unusually hushed introduction of a brand flagship is part coordination of product shipping to some 30 markets around the globe, and partly to avoid the election campaign.

“We want to have critical mass at the dealerships so, when we gain messaging, people can go to the dealerships and experience it,” said Continental chief program engineer Mike Celantino, 57. “There’s a big political season going on. Getting the message out in the middle of that is hard.”


But while the Continental doesn’t have the sex appeal of a Tesla Model S or the performance edge of a BMW or a Cadillac, it does allow Lincoln to try new things with how it handles luxury customers:

That includes services such as having dealers like dealer pick-up of Lincolns for all maintenance needs — and providing a Lincoln loaner. That commitment has already been put to the test when 1,900 Continentals were recalled this month for a minor LED headlight fault.

“It’s what you would expect from a boutique hotel, which is where we’re taking a page for the service aspect,” Celentino said.


Reverse: An Interesting Collector Car


Neutral: When Does Tesla Need To Start Posting Regular Profits?

I say if the company can’t cut it when Model 3s are rolling off the assembly lines on a regular basis, it’s going to be in serious trouble.