Tesla Q3 - Growing Profits

Last night Tesla reported their much-anticipated third-quarter numbers. As expected, they beat expectations, but the share price slipped back a little in after-hours trading. The market always has high hopes for Tesla, meaning the expectation is for their numbers to beat expectations, and in this case, the expectation was for them to beat expectations by even more. Does that make sense? Yes.

Tesla racked up $13.8 billion in revenue for the last three months, with $12 billion coming from car sales. Management says they expect to "achieve 50% average annual growth in vehicle deliveries" over a multi-year horizon. The good news is that as they sell more cars, they also grow profit margins, because of economies of scale and by increasing selling prices. Tesla reported a gross profit margin of 30% for the quarter, their best to date.

To justify the company valuation they need to increase the speed at which they produce new vehicles. The good news is that management say the first cars will roll off their new Texas and Berlin gigafactories before the end of the year.

The rest of their revenue is $800 million from the energy division and $900 million in services and other sales. There is massive growth potential in their energy business, and Musk thinks it will be as big as the vehicle division in time. The services division also has good prospects as Tesla launches dynamic pricing insurance, similar to Discovery Insure, and they can sell downloadable upgrades to their cars.

The sky is the limit when it comes to Tesla at the moment. We've been accumulating these shares for clients.