Tesla Model S sedan. Image Credit: AP

HIGHLIGHTS:

■ EV maker Tesla reports a “historic” profitable quarter driven by Model 3 sales

■ Net income of $311.5 million (Dh1.1 billion) on revenue of $6.8 billion in the quarter, more than doubled

■ Shares in the electric car maker leapt 13.6 per cent to $327.81 in after-market trades that followed release of the earnings figures.

■ Model 3 sedan, which it hopes to produce on mass scale, was the best-selling car in the US, claims Tesla


San Francisco: Tesla on Wednesday reported a “historic” profitable quarter driven by demand for its Model 3 aimed at the mass market.

Tesla reported a net income of $311.5 million (Dh1.1 billion) on revenue that more than doubled to $6.8 billion in the quarter that ended September 30.

Shares in the electric car maker leapt 13.6 per cent to $327.81 in after-market trades that followed release of the earnings figures.

The company's earnings report, released after the markets closed Wednesday, also showed better-than expected car sales and a faster timeline on its Model 3 production.

The electric car maker said its midsize Model 3 sedan, which it hopes to produce on mass scale, was the best-selling car in the US when measured by revenue and the fifth best-selling car in terms of volume.

Tesla CEO Musk told analysts on a call that it was an "incredibly historic quarter" for the young car company. It was welcome news for investors following an otherwise tumultuous few months.

Musk previously said the company would become sustainably profitable by now, having had just two profitable quarters prior to Wednesday's report since it went public in 2010.

The company confirmed that it also expects to generate a profit during the fourth quarter.

30% less labour hours to build Model 3

Production rates improve Tesla gave investors hope that its production rates will improve, saying that the number of labour hours it takes to build the Model 3 fell by more than 30 percent from the second to the third quarter, and it took less time to build than the Model S sedan and Model X sport utility vehicle — another first for the company.

The electric car maker has been struggling to ramp up production of its Model 3 sedan, telling investors October 2 that it made 53,239 of the vehicles during the quarter.

That fell just shy of its goal of producing an average of 5,000 a week, but the company said it built more than 5,300 during the last week of the quarter.

Here's how the company did compared with what Wall Street expected, based on average estimates of analysts polled by Refinitiv:

■ Adjusted earnings: $2.90 a share vs. an expected loss of 19 cents per share

■ Revenue: $6.82 billion vs. an expected $6.33 billion

70% surge in revenue

Tesla posted net income of $311.5 million, or $1.75 per share, compared with a loss of $619.4 million, or $3.70 per share, a year ago.

"We will focus even further on cost improvements while continuing to increase our production rate" during the fourth quarter, the company said.

Strong demand for the Model 3 also bolstered the results.

Musk told analysts on a call that demand for Model 3s was "probably on the order of anywhere from 500,000 to 1 million cars a year."

The company said customers were trading in cheaper vehicles to buy a Model 3, "even though there is not yet a leasing option."

"This leads us to believe that the total market potential for Model 3 is larger than just the premium sedan," the company said.

Musk announced on Twitter Tuesday that the company is limiting certain options on its higher-end Model S sedans and Model X SUVs to streamline production.

$45,000 version of Model 3

The company also recently announced plans to start selling a $45,000 version of the Model 3; the price was raised this week to $46,000.

It has yet to produce the base Model 3, which it has promised for a price of $35,000 before incentives.

The company said it was "working hard" to bring down the price on its Model 3 to $35,000.

"Better than expected Model 3 cost reduction is allowing us to bring more affordable options to the market sooner," the company said, noting its slight price cut over the last week.

Musk gave guidance that Tesla was probably less than six months from rolling out that lowest-priced version of the Model 3.

China production

Meanwhile, Tesla said it was accelerating its Model 3 production overall, and working to get it started in China where the company just bought land for a factory.

"We are definitely going to do local production in China, we are moving rapidly on that," Musk told analysts, adding that Tesla will be producing Model 3s in China next year and, longer-term, will also make batteries there.

The company said earlier this month that its factory in Shanghai would help it minimize the impact of tariffs there, which it said increased the tax rate on Teslas sold in China to 40 percent, compared with 15 percent for all other imported cars.

The company paid 973 million yuan, or $140 million for an 864,885-square meter plot in Shanghai's Lingang area for the new factory last week.

The company's cash position also improved by $731 million during the quarter, despite repaying $82.5 million in bonds, the company said.

It said it had $881 million in free cash flow, cash produced through operations minus capital expenses, and expects flat or positive free cash flow next quarter as well, even with greater debt coming due.

"Our cash position should remain at least flat in spite of our plan to repay $230 million of convertible notes in cash during Q4," the company said.