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Tesla releases Q3 2019 earnings: A tough journey to profitability

Q3 has proven an unexpected comeback for the financially-maligned electric automaker, with a turn to profitability after 2 quarters of losses.

Tesla confirmed a net profit of $143 million Losses in 2019 have so far reached $1.1 billion As a production launch in China looms, Tesla could see its fortunes improve further

Tesla has just released its latest round of its often-awaited quarterly earnings. This time, Q4 2019 results show a welcome return to profitability. 

The company confirmed a net profit of $143 million, a welcome recovery following two quarters’ worth of losses, tallied at $1.1 billion. This is likely attributable to the multiple cuts to their worforce made to curb operating costs. 

Tesla generated $6.3 billion of revenue, which is down slightly from the second quarter, and down about $520 million from the third quarter of 2018, The Verge notes. 

Naturally, company stock saw a rise – 20% following the results announcement, CNBC reports

While investors can finally take a breath of relief, the journey to this modest profitability has been a tough one. 

A bumpy ride for Tesla

After making a profit for the first time in 2 years back in Q3 2018 on the back of a highly successful Model 3, Tesla’s quarterly earnings have been all over the place. Q4 2018 continued Tesla’s profitability, but revenues saw a slight dip. 

Q1 2019, as CEO Elon Musk had foreseen, saw Tesla in the red once more, ending a two-quarter profit streak. Losses in Q1 totalled $702 million. While Tesla was selling much more than the year before, its growing costs curbed any rise in profits. To top that off, Tesla was having to accomodate two new markets, Europe and China, all while still running the entire company’s production from one single factory in Nevada, USA.

According to the Verge, Musk discussed the difficulty of shipping three car models globally from one factory with investors, which he said impacted the first quarter results. “This is the most difficult logistics problem I’ve ever seen, and I’ve seen some tough ones,” he said. 

Having been given the green light to begin production in China this month, with work on Tesla’s Shanghai “Gigafactory” nearing completion, Tesla will soon see an ease in production pressures. Another factory is set to be built in Europe in 2021

Q2 2019 saw another wave of financial pessimism for the firm, Tesla lost $408 million in the quarter, bringing its total losses in 2019 above $1 billion. However, there was a lot to write home about this time. According to CNBC, Tesla set new production and delivery records during the second quarter. In fact, Tesla made and delivered more cars in the second quarter of 2019 than it did in any other quarter in company history. 

The Verge explains that a large reason for the lack of profitability is the weakening sales of the Model X and Model S, older Tesla vehicles that net the company more profits. With the rise in popularity of the newer and more affordable Model 3,  the drop in sales is understandable. 

“There’s probably a bit too much focus on [Models] S and X,” Musk said told investors. “But the story for Tesla in the future is, fundamentally, the Model 3 and Model Y.”

With direct access to the Chinese market, Tesla is likely to pull many quarters into the black. However, competition from worldwide automakers continues to mount, and China alone is home to more than a hundred electric vehicle makers. We’ll have to see how Tesla closes the year with its fourth quarter.