
Tesla reports first quarterly profit in more than three years - blastofpast
http://www.reuters.com/article/us-tesla-results-idUSKCN12Q2QW
======
mitchellh
Really great news! But something that shouldn't be overlooked is the discounts
they gave in Q3 to push deliveries up.

First, those that know me know that I am a Tesla FANATIC. My girlfriend once
challenged me to not talk about Tesla (motors, energy, something) for a 24
hour period. I dunno if I've ever done that honestly. I'm also an owner (no
surprise given my fanaticism, lucky to be able to afford one). And I also own
some TSLA.

Elon sent a company-wide email in Q3 to push sales to show profitability. I
don't think its a fluke but they did something they never really do to help
reach this number: they offered significant discounts on vehicles (new, pre-
owned, showroom). Like, really big discounts (relative to the price of the
car).

That certainly helped. Elon also sent an email at the start of Q4 that NO MORE
DISCOUNTS are allowed. So I'm really very interested to compare Q3 to Q4 when
that comes.

I also happen to know a lot of the people who bought a heavily discounted
Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla
announced the new Autopilot hardware (that isn't retrotfitable on old
vehicles). If you did your homework on Tesla though, this wasn't a surprise.
It was expected that Tesla would make some big announcement to spur Q4 sales
especially after Elon said there wouldn't be any capital raises in Q4 while he
expected to hit Q4 numbers. You generally can't do that without some big news.

Just wanted to color this news with that. I'm still very excited!

~~~
usaphp
> "I also happen to know a lot of the people who bought a heavily discounted
> Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla
> announced the new Autopilot hardware (that isn't retrotfitable on old
> vehicles). "

Wow I guess this is the best proof of how Tesla is really changing the way
auto owners think, this is something that wasn't unthinkable before Tesla and
their over the air updates. Can you imagine a BMW owner complaining that his
2015 model does not have stuff that new 2017 models will get??

~~~
tw04
No, but I can imagine a BMW owner complaining that the 2016 model came out 3
weeks after he bought his 2015, with no notice from BMW, the sales guy, or the
press. And that the 2016 model came with a bunch of new features he really
wanted and would've been willing to pay for.

~~~
will_hughes
> no notice from BMW, the sales guy, or the press

Tesla has done this for a long while. Newer larger battery pack options, newer
interior and tech package options, and completely new performance and
configuration options (insane, dual motor, and autopilot 1.0 all hit at once)

While there wern't announcements ahead of time what was coming, there were
often advance notice that there was an announcement coming, and even when
there wasn't - there was a big period of quiet from Tesla leading up to it.

For Autopilot 2.0 everyone knew it was coming for at least the Model 3 launch
(Elon said as much at the Model 3 announcement), they just brought it forward.

It is really no different to what happens to customers for a bunch of other
tech companies. Canon sure doesn't tell anyone when their new models are
coming out - you know it'll _probably_ happen at a major trade show, but only
if you're someone that follows that kind of thing. The average customer at
their camera shop isn't going to have the sales guy say "Hey, wait a week and
we'll have the next version available."

~~~
vsl
Yes, they keep doing it, and _if you pay close attention_ to Tesla, you’re
aware of it. You’re also aware of rumors of AP2 coming. If you don’t follow
Tesla news, you’re in for a surprise.

Regardless, I think it’s a fair critique: buyer’s remorse is a real thing with
Tesla. It’s one thing to buy a $3000 computer from Apple and have it replaced
with a much better one the next week, it’s another to buy a $100K car and have
a major improvement two weeks later.

~~~
kakarot
At the end of the day however, it is not Tesla's responsibility nor in their
best interest to educate their customers to make intelligent purchasing
decisions.

If you want change in this regard, it's not going to come from Tesla.

~~~
lallysingh
It can lead to buyer hesitance, which is a problem. Why buy now when the car
can suddenly become better? Without any understanding of when it would get
better, or how much, the fear of the regret can be substantial.

------
shasheene
The Economist recently did a good article on the financing of Elon Musk's
companies that flew under the radar of Hacker News that probably warranted
further discussion [1] [2]. (Though the author of that piece completely misses
the relative importance of each company to Musk, suggesting "he could try to
sell [...] SpaceX, through gritted teeth, to a defence firm")

It's unfortunate there's a bit of a reality distortion field around discussion
Elon Musk's companies sometimes. Maybe because everyone wants his companies to
succeed...

[1]
[http://www.economist.com/news/business/21709061-entrepreneur...](http://www.economist.com/news/business/21709061-entrepreneurs-
finances-are-jaw-dropping-inventive-and-combustible-his-
space?fsrc=scn/fb/te/pe/ed/countdown)

[2] [http://www.economist.com/blogs/economist-
explains/2016/10/ec...](http://www.economist.com/blogs/economist-
explains/2016/10/economist-
explains-21?fsrc=scn/fb/te/bl/ed/canelonmusksbusinessempiresurviveandthrive)

~~~
patrickk
> Maybe because everyone wants his companies to succeed...

Surely the only ones who _don 't_ want dramatically cheaper space launches,
cheaper, widely available solar PV installations and attractive, affordable
electric vehicles are deeply entrenched incumbents whose continued
profitability involves polluting the planet, or those who really hate the
environment for whatever reason.

There are valid criticisms you can level at Musk (I wouldn't like to be a
direct employee), but taking on the Wall Street quarter to quarter thinking
with enormous, risky endeavours that have the potential to completely
revolutionise some of the biggest industries out there (energy and transport)
takes an extreme type of individual to succeed.

~~~
ams6110
I don't have anything against Musk. I simply don't care much one way or the
other because the things he's working on will never affect me.

Electric cars are not something I'm interested in owning at the price Tesla is
asking. Or even half what Tesla is asking.

Utility electricity works fine for me, is a small fraction of my monthly
budget, and is reliable. I.e. something I never really worry about. Payments
for and maintenance of a personal PV system do not interest me.

Space travel? Again if he wants to spend his money there, fine. But I don't
see it changing my life.

I am not an entrenched encumbent either. I just drive cheap, old cars and have
no interest in visiting Mars. I don't even care for conventional air travel.

~~~
spectrum1234
Model 3 is going to cost $35k, and like $28k after incentives. It will SAVE
about $1500/year on gas and $500 on maintenance. This is cheaper than a Honda
Civic.

Are you sure you aren't interested at this price?

~~~
ghaff
Really? I have a 20 year old Honda del Sol--which is essentially a 2-seater
Civic variant--on which I spend under $500/yr on gas and under $500/year on
maintenance. That's not typical I'm sure--and I do have another vehicle--but
you can't claim your numbers as general savings.

~~~
hxegon
Can you really compare a 20 year old honda del sol to a new model 3 (when it
comes out obvioulsly) though? I don't have anything against used cars, but its
apples and oranges. You can totally claim those numbers as savings, in an
apples to apples comparison to a similar class car from a close year.

~~~
ghaff
The claim was around saving money vs. a Civic. You're going to have to assume
a lot of miles (and make favorable assumptions about long-term maintenance) to
make the numbers work. I have nothing against EVs but they're generally not a
good purely financial decision for most people today.

[ADDED: The mass-market Tesla is going to still be a premium vehicle relative
to other options. There's nothing wrong with that. But it's unrealistic to
expect that crunching the numbers the right way will make Tesla the optimal
financial decision for everyone.]

------
RivieraKid
Related, at the beginning of Q3 Elon Musk sent email to employees urging to
cut costs:

> I thought it was important to write you a note directly to let you know how
> critical this quarter is, The third quarter will be our last chance to show
> investors that Tesla can be at least slightly positive cash flow and
> profitable before the Model 3 reaches full production.

~~~
erikpukinskis
Although now he says (in the earnings call) there is a _slight_ chance that Q4
will also be profitable.

------
simonsarris
Direct link to the letter:
[http://files.shareholder.com/downloads/ABEA-4CW8X0/310041501...](http://files.shareholder.com/downloads/ABEA-4CW8X0/3100415019x0x913801/F9E5C36A-AFDD-4FF2-A375-ED9B0F912622/Q3_16_Update_Letter_-
_final.pdf)

> Total Q3 GAAP revenue was $2.30 billion, up 145% from Q3 2015, while total
> Q3 gross margin was 27.7%, compared to 21.6% in Q2. Total automotive revenue
> was $2.15 billion on a GAAP basis, up 152% from Q3 2015. Our final Q3
> delivery count was 24,821,over 300 more than the estimated delivery count we
> shared on October 2nd. Deliveries increased 114% from the third quarter of
> 2015, and was comprised of 16,047 Model S and 8,774 Model X vehicles. In
> addition, 5,065 vehicles were in transit to customers at the end of the
> quarter. These vehicles will be delivered in Q4.

~~~
vvanders
> We achieved record production levels in Q3, rising to 25,185 vehicles for an
> increase of 37% from Q2 and an increase of 92% from Q3 last year.

An almost 100% production increase Year over Year, they said it couldn't be
done and yet here we are.

~~~
jacquesm
Compare with Toyota's annual production of approximately 9 million vehicles
for some perspective.

~~~
RubberSpoon
Compare with Toyota's head start of approximately 66 years for some
perspective.

~~~
TylerE
They're literally building them in an old Toyota plant, that at peak output
was 426,000 vehicles annually.

~~~
erikpukinskis
They're building televisions in an old lawnmower plant. For the most part they
built a new factory inside the old one.

~~~
rimantas
More like building tv sets into lawnmower.

------
antimatter
One thing to note, I have a few friends who work at Tesla service centers.
They cut A LOT of corners when it comes to service to show profits this
quarter. For example, for the location that one of my friends works at (which
happens to be one of the busiest locations in Southern California), they sold
almost every single loaner vehicle as a used car.

~~~
greglindahl
While it's obvious that Tesla did whatever they could in Q3, it's worth noting
that that's the strategy for loaner cars: they are supposed to be new, loaded
cars, so that owners with a 2-3 year old car are tempted to upgrade.

Given the new sensors, they need to update the loaner fleet.

~~~
angstrom
Right, I don't think that's dishonest. These were vehicles essentially already
paid for by Tesla in previous quarters. The fact that they could still sell
them is a good sign.

------
rascalpenguin
I imagine this is because the majority of revenue is spent on growing the
buisness, rather than going into profit (As profit = revenue - expenses). As
Tesla still has a lot more space to grow. Same method Amazon did until
recently for years.

~~~
sova
Excellent! Thank you for pointing that out. "Profit" is a comical term, how
can we measure the net savings for humanity-at-large from such endeavors?

~~~
vinceguidry
I wouldn't exactly call it comical. It's just that it's a political term
rather than a financial one. Deciding to take a profit this year is an
important signifier for the investors, who all must have the same question in
mind, how long is it going to take for their investment to pay off.

As long as Musk decides to roll all revenues back into operations, investors
get nothing. Musk has a reputation as someone who doesn't really care all that
much about his investors, this is a move carefully designed to massage that
image. Musk still doesn't care about his investors, but throwing a little cash
their way keeps their voices from building to a crescendo.

As for what humanity is getting out of the deal, they already got the Model S
and X, it's soon going to get the 3.

~~~
maxerickson
_humanity is getting out of the deal, they already got the Model S and X, it
's soon going to get the 3_

Let's not be too breathless when we describe the cars that a few hundred
thousand of the wealthiest people on the planet have purchased.

~~~
Analemma_
... at a considerable cost to taxpayers in what was essentially a large upward
wealth transfer.

It might be worth it in the end, but call a spade a spade.

~~~
eanzenberg
In the US gas is subsidized to hell. It's not even close compared to EV
credits paid out.

~~~
Reason077
The ZEV credits that Tesla receives, and sells on, aren't paid for by
taxpayers - they're paid for by other automakers.

Ultimately, it comes out of the profits of whichever automakers aren't
producing enough low-emission cars.

~~~
sova
Interesting. This is my first time learning about ZEV credits. That's actually
pretty cool.

------
toomuchtodo
SCTY acquisition is locked up.

EDIT: Elon just said on the investor call "Our current plan requires _no
capital raise whatsoever for the Model 3 production_. Solar City will be
neutral to cash contributor in Q4.

~~~
pilom
I'm not sure it does. All it shows is that Tesla, may at some point in the
future be consistently profitable. It doesn't change anything about the
prospects of SolarCity to be consistently profitable and if I were a Tesla
owner that's what I'd want to see, getting more value than I put in.

~~~
loceng
The whole is greater than its parts. Tesla, to 'own' the ecosystem, needed to
eventually offer what SolarCity has or there'd be a segment in their market
they are catering to.

~~~
vkou
By that logic, what's really preventing Ford and Toyota from reaching true
success is that they don't own any oil rigs.

TSLA owning SCTY makes about as much sense as Toyota buying Exxon-Mobil, with
a small helping of 'enormous conflict of interest.'

~~~
kbenson
If ford and Toyota were marketing their vehicles to people that for the most
part had substandard access to gas, or gas fluctuated enough that they were
caught paying higher prices based on the time of day, they may very well have
come out with accessories to deal with this, such as standard equipment tow-
hitches on all cars and small gas trailers, so you could plan a trip to the
gas station that might be a ways away, and for when gas is cheap.

We don't generally have that problem in the US thought, and places where that
might be useful are dwarfed by the markets it's not at that point, so it
doesn't make sense. Otherwise, yes, that would be a big missed market
opportunity for car companies. A chance to sell more stuff, and put it all
under the same financing.

That is, the difference between Tesla and the ICE automakers is that one of
them has a resource (fuel) distribution problem that was already solved a long
time ago, and one doesn't. That necessitates different strategies.

------
generj
Most impressive here is a 70% increase in production.

Note that this occurred while Model 3 production is still starting.

------
11thEarlOfMar
The biggest news in this release is gross margin.

Gross Margin Jumped from 26.7% in Q2 to 33.2% in Q3.

For reference, MRQ,

GM gross margin: 13.9%

Toyota: 23.6%

VW: 19.9%

Granted, those are not luxury auto makers, but Tesla is more profitable on a
gross margin basis. That margin fuels everything from cash flow to R&D
spending. 33% for an automaker is huge.

~~~
vvanders
Yup, and as battery prices drop those margins are going to get even
better(although I doubt we'll see the same level on the Model 3).

~~~
ams6110
Only if they can sustain prices as competition comes online from other makers.

~~~
jsight
It is going to take about 3 years for competition to reach where Tesla is
right now with regards to range and charging networks.

~~~
gniv
Charging networks maybe, but range no. The Chevy Bolt that will start selling
in a couple of months has 238 miles range.

GM doesn't have the superchargers, but they can afford to price these cars
with zero profit for a while, if they want to undercut Tesla.

~~~
jsight
My point was that the two are important together. A 240 mile range without a
supercharger network is still a car that will not be particularly useful for a
long trip (2+ hour drive).

------
dwills
Another take on the Tesla financial story:

[http://www.zerohedge.com/news/2016-10-26/tesla-earnings-
smas...](http://www.zerohedge.com/news/2016-10-26/tesla-earnings-smash-
expectations-after-dramatic-change-reporting-methodology)

------
forgetsusername
Cashed in a large amount of ZEV credits, for a one-time revenue bump of
$140MM. Excluding that, GAAP loss was $117MM. Big increase in accounts
payable. But, all things considered, that's not bad.

~~~
igravious
Very first line of the Update linked to in another comment,

> The Tesla third quarter results reflect strong company-wide execution in
> many areas. Furthermore, we expect this to continue into Q4 and project
> positive GAAP net income (excluding non-cash stock-based compensation)
> despite ZEV credit sales in Q4 likely being negligible.

[https://news.ycombinator.com/item?id=12800234](https://news.ycombinator.com/item?id=12800234)

~~~
forgetsusername
I'm not sure your point. That they expect profits to continue without the
credits? I guess we will see. Not sure how this invalidates anything I wrote.
I care less about projections than financial statements. Those credits
composed a good chunk.

~~~
greglindahl
It's not a wild prediction, given that the new sensors means another surge in
orders, which gives Tesla a chance to prioritize higher-margin, more expensive
cars.

I don't know how many potential buyers were waiting, but I was expecting a
bump in sensors and compute power sooner than later.

------
phrygian
Can someone explain what this[0] means? It would seem that when you buy the
car, you don't own it after all.

[0] [http://www.huffingtonpost.com/entry/tesla-self-driving-
car-n...](http://www.huffingtonpost.com/entry/tesla-self-driving-car-network-
uber-lyft_us_5810cebfe4b001e247df8fe2)

~~~
greglindahl
When you buy a lot of computing equipment, there's a clause in the contract
saying that you can't use it to control a nuclear power plant. Do you own the
computer?

~~~
cortesoft
I think that is because of the law.

This clause is more like Microsoft saying you can't use Windows to write
software for Apple computers.

~~~
imtringued
It doesn't change the fact that you still own the hardware on which the
software is executed.

You own the car and the computer but you don't own the autopilot software or
windows that runs on the hardware.

~~~
cortesoft
That doesn't mean people can't be upset that there are limitations placed on
how you can use the software. Imagine if you were told you couldn't use
Microsoft Word to write about certain topics, for example.

------
erikb
It may even be a bad things if they have profits considering the kind of
revolution they are attempting on the car industry. I hope though, that it
means things went better for them than expected.

~~~
pilom
Profits do not equal money returned to investors. These profits will be held
for future capital purchases or used to pay down debt or used for R&D in the
future.

------
justinzollars
Great news! But not a surprise considering the great people who work there.

------
yladiz
I'm impressed and skeptical of the substantial increase in production. A 70%
increase in production in one year would likely require substantial changes in
the production stages. Hopefully Tesla didn't cut any corners to hit this
production number; I'm hopeful that they just scaled back their production
initially and now show their "full potential", or added a lot of new machinery
in their production line(s). Maybe they will reach the 500,000 target.

~~~
mikeash
They've been achieving production increases like that for years now. 70% YoY
isn't anything special or remarkable for Tesla at this point.

------
tschellenbach
I've been reading the book about Elon Musk, great read. This is all the more
impressive considering all the stories of times they almost went bankrupt.

~~~
ams6110
Amost (or actually) going bankrupt is normal (or at least, not unusual) for
entrepreneurs.

------
tn13
Good for Tesla. It now only needs to reduce its dependency on government dole
to kill the rest of the auto industry.

~~~
aerovistae
What are you talking about?

~~~
tn13
subsidies per car.

------
matchagaucho
Curious to understand how Model 3 deposits are reported in financials.
Deferred revenue?

~~~
ghaff
Yes, I believe. As such it will be on the balance sheet but generally deferred
revenue shouldn't have an impact on the income statement given accrual
accounting. It will be recognized as revenue as the product is delivered. (It
will affect the cash flow statement as well, of course.)

~~~
annerajb
There is a section that says customer deposits. I thought that's where the
Model 3 Deposits and pending order deposits went.

~~~
ghaff
Looks like it. So a deposit is received and it's recorded as cash (an asset)
and customer deposits (a liability) on the balance sheet. And it doesn't
affect the income statement. [ADDED: So customer deposits just a more specific
name for revenue that can't be recognized as such yet.]

------
ryanmarsh
Why would they do that? Why post profits?

~~~
sien
November 17 vote to approve Solar City purchase. Solar City has Musk's cousins
with stakes worth millions.

[http://www.bloomberg.com/news/articles/2016-10-26/the-
goldma...](http://www.bloomberg.com/news/articles/2016-10-26/the-goldman-way-
to-fire-bit-by-bit-hundreds-are-given-heave-ho)

[https://www.bigw.com.au/product/fisher-price-keyboard-
mat/p/...](https://www.bigw.com.au/product/fisher-price-keyboard-
mat/p/WCC100000000209539/)

------
mortdeus
Elon Musk works too hard to fail.

------
albertTJames
"Of 20 analysts covering the company, seven have a "sell" rating on the stock,
four rate it "buy" or higher and nine have a "hold", according to Thomson
Reuters data."

=== proof that something is very wrong with a world defined by speculators

~~~
mehwoot
How is a company with a market cap of $32 billion making a $20 million
quarterly profit proof that something is wrong with people who think that
company might be overvalued? Stock ratings are not about how a company is
doing but about how a company is doing relative to its price.

~~~
ww2
stock price is about the sum of all future cash flow. not current profit
level. you can have different forecasts, but you cannot say the act of making
forecast itself is nonsense.

