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Tesla posts surprise 3Q profit, stock surges

Tesla (TSLA) unexpectedly turned a profit in the third quarter, sending shares soaring in after-hours trading.

Here were the main numbers from the report, versus consensus expectations compiled by Bloomberg:

  • Revenue: $6.30 billion vs. $6.45 billion expected and $6.82 billion YOY

  • Adjusted earnings per share: $1.86 vs. loss of 24 cents expected and earnings of $2.90 YOY

As is typical with Tesla’s quarterly expectations, the range of the Street’s estimates for the company’s bottom-line results ran a wide gamut, ranging from a loss of as much of $1.25 per share to earnings of as much as 34 cents per share, according to Bloomberg data.

Shares of Tesla jumped more than 18.58% to $302.00 each as of 9:31 a.m. ET Thursday morning, extending gains from the overnight session.

“Super proud of Tesla team for great execution & support of Tesla customers greatly appreciated!!” Tesla CEO Elon Musk said in a Twitter post after results were released.

The logo marks the showroom and service center for the US automotive and energy company Tesla in Amsterdam on October 23, 2019. (Photo by JOHN THYS / AFP) (Photo by JOHN THYS/AFP via Getty Images)

During the three months to September, Tesla delivered a record 97,000 vehicles and produced 96,155, the company reported earlier this month. But this had failed to appease some investors who had hoped the electric car-maker would top 100,000 deliveries in the quarter, after CEO Elon Musk wrote in a leaked email that the company had “a shot” of hitting the six-figure mark, according to reports. Tesla’s stock immediately fell after the company posted third-quarter deliveries on Oct. 2, but has risen about 4.5% in the weeks since.

With this quarter’s delivery figures in the rearview mirror, investors were eying Wednesday’s report to see whether Tesla was on a path to translating these into profitable growth, especially given that the lower-priced Model 3 again comprised more than 80% of Tesla’s deliveries.

As of last quarter, Tesla had continued to target an eventual 25% gross margin on its S, X and Model 3 vehicles. Tesla’s third-quarter results moved it closer to this target, with automotive gross margin rising to 22.8%, from 18.9% in the second quarter.

“Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened. Additionally, operating expenses are at the lowest level since Model 3 production started,” Tesla said in a statement. It said its return to profitability in the third quarter “was possible by removing substantial cost” from the business, and said margins improved “in part due to Smart Summon-related deferred revenue recognition, FX and other non-recurring items” during the quarter.

Musk said during last quarter’s call with analysts that he expected Tesla to be “around breakeven” during the third quarter and profitable for the fourth. The company last reported a profit during the fourth quarter of 2018.

In its Wednesday update, Tesla said it expects “positive GAAP net income going forward, with possible temporary exceptions, particularly around the launch and ramp of new products.”

Meanwhile, Tesla’s cash position improved sequentially, and the company exited the quarter with $5.3 billion in cash and cash equivalents on hands – its highest cash balance ever – driven by free cash flow of $371 million. That bodes well for the company’s upcoming November debt maturity of $566 million in outstanding convertible notes.

The electric-vehicle maker also indicated it is chugging along in its efforts to bring production online at its Shanghai Gigafactory, which broke ground in January. It already opened its first transmission line to boost its electricity supply last week – a major victory putting the company on track to hit its goal of producing at least 1,000 vehicles per week at the factory by the end of the year, based on Musk’s projections during a conference call with analysts in April.

The company is now producing full vehicles on a trial basis at the Shanghai Gigafactory, Tesla said in its Wednesday statement.

“We have cleared initial milestones toward our manufacturing license and are working towards finalizing the license and meeting other governmental requirements before we begin ramping production and delivery of vehicles from Shanghai,” Tesla said. “China is by far the largest market for mid-sized premium sedans. With Model 3 priced on par with gasoline powered mid-sized sedans (even before gas savings and other benefits), we believe China could become the biggest market for Model 3.”

Tesla plans to announce the location of its Europe-based Gigafactory by the end of the year, Musk said during a call with analysts Wednesday.

The company is also ahead of schedule in launching its Model Y, and now anticipates the vehicle will roll out in summer 2020, from fall 2020 previously. Musk said during a call with analysts Wednesday he thinks it will “outsell S, X and 3 combined.”

Shares of Tesla were down 23.5% for the year-to-date through Wednesday’s close, versus a 19.5% gain in the S&P 500 (^GSPC).

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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