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Tesla reports surprise profit, stock surges

Tesla reported its third-ever profit in its eight years as a public company.

The electric car-maker blew past expectations for revenue and earnings, reporting adjusted EPS of $2.90 per share on revenue of $6.82 billion. This exceeded average analyst expectations of losses of 15 cents per share on revenue of $6.32 billion. The company brought in an adjusted $516 million for the quarter.

The period ending September 30 “was a truly historic quarter for Tesla,” the company said in a statement. “Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume.”

Shares of Tesla advanced Thursday morning, jumping 8.22% to $312.22 each as of 9:51 a.m. ET.

Tesla released the above chart in its quarterly letter to shareholders.

Free cash flow came in at $881 million, buoyed by operating cash flow of $1.4 billion, the company reported. Average expectations were for free cash flows of $280 million for the quarter, according to analysts polled by Bloomberg. CEO Elon Musk said during a call with investors following the release of earnings that he expects Tesla to be cash flow positive for all future quarters, except those where a significant repayment is due.

Musk added that the company does not intend to raise equity or debt, a restatement of the executive’s previous obstinance against raising additional capital.

“That may change in the future, but the current operating plan is to pay off our debts” and not to refinance them, Musk said.

Operating income registered at $417 million, with an operating margin of 6.1%. Tesla reaffirmed expectations of continued GAAP net income and free cash flow in the fourth quarter.

Tesla also offered more details on its production plans in China after the company announced it had signed an agreement with the Shanghai government for its first overseas gigafactory earlier this month. The company plans to produce 250,000 Model 3s and Model Ys per year in its factory in China, according to a notice released on the Shanghai government’s website on Wednesday.

“In order to significantly increase the affordability of Model 3, we have decided to accelerate our manufacturing timeline in China,” the company said in its earnings report Wednesday. “We are aiming to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing. Production in China will be designated only for local customers.”

Tesla anticipates that gross margins for Model S and X vehicles will decline slightly as sequential increases in tariffs in the fourth quarter for Chinese-sourced components “will be only partially offset by increased manufacturing cost efficiencies.” For the Models 3, S and X, additional tariffs will impact gross profit negatively “by roughly $50 million,” the company said.

FILE PHOTO: A Tesla sales and service center is shown in Costa Mesa, California, U.S., June 28, 2018. REUTERS/Mike Blake/File Photo

Musk unexpectedly moved up the date of Tesla’s earnings release earlier this week, leaving many analysts expecting that the executive was in a hurry to share good news. Musk previously promised Tesla would be profitable and cash-flow positive in the third and fourth quarters this year.

Tesla’s stock has seen wild volatility swings throughout 2018, hitting an intraday high of $387.46 per share in August. The stock ended Wednesday’s session down 1.92% to $288.50 per share, below its 50-day moving average of $290.71. The culprits behind the convulsions included the company’s struggles to hit production targets and CEO Elon Musk’s unpredictable behavior, the latter of which resulted in a slew of legal concerns extending into the current quarter.

Aside from Tesla’s public relations troubles, the company has begun to deliver on its production promises as of late. Tesla announced earlier this month that it hit its production target for its Model 3 sedans, producing more than 53,000 in the third quarter.

Tesla lowered factory delivery time to 20 days from 30 days in the quarter, Musk said during the investor call Wednesday. He added his goal is to decrease average delivery time to under 10 days in the fourth quarter, which would contribute to a major improvement in capital efficiency for the company.

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

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