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Tesla Motors surprises with 3rd-quarter profit

Published:Friday | October 28, 2016 | 10:00 AM
In this Wednesday, December 2, 2015 file photo, Tesla Motors Inc CEO Elon Musk delivers a speech at a climate change conference in Paris.

Electric car maker Tesla Motors posted its first quarterly profit in three years on Wednesday, giving investors reason to cheer after months of doubt.

Tesla's shares have fallen since the summer as some investors questioned the company's proposed merger with solar panel maker SolarCity Corp. Goldman Sachs recently downgraded Tesla's shares from 'buy' to 'neutral' and lowered its price target, saying the potential merger could delay the release of Tesla's much-anticipated Model 3.

But Tesla CEO Elon Musk said in a letter to investors that the third quarter showed Tesla could meet its goals while keeping one eye on opportunities for future growth.

Musk also reiterated that Tesla shouldn't need to raise cash to support the Model 3, and doesn't expect a capital raise through the first quarter of next year. There had been some questions about the company's ability to proceed without raising more money, but Tesla ended the quarter with positive free cash flow of US$176 million.

"Things are looking good," Musk said in a conference call with analysts and media. "It's not to say there could be some darkness ahead ... (but) it's overall looking quite promising."

Tesla reported net income of US$21.9 million, or 14 cents per share, up from a loss of US$229.9 million in last year's July-September period.

Revenue more than doubled to US$2.3 billion. That included US$149.7 million in non-automotive revenue - up 78 per cent from last year - in part because of growth in Tesla's energy-storage business.

Surprise for Wall Street

Tesla, which went public in 2010, has had only one other profitable quarter: the first quarter of 2013. But the company said it expects to report net income in the fourth quarter of this year.

The results surprised Wall Street, which forecast a loss of 86 cents per share, according to analysts polled by FactSet. Analysts had expected revenue of US$2.2 billion.

Tesla delivered 24,821 vehicles during the quarter, an increase of 72 per cent over the same period last year. The Palo Alto, California-based company said Wednesday it still expects to deliver just under 80,000 vehicles worldwide this year, up from 50,500 in 2015.

Tesla said it also remains on track to start deliveries of its US$35,000 Model 3 electric car in the second half of 2017. Musk would not give an update on the number of reservation holders the company has for the Model 3. In May, the company said 373,000 people had put down US$1,000 deposits for the car.

Tesla could still face some challenges in the near future. The company raked in US$138.5 million in the third quarter by selling zero-emission vehicle credits to other automakers, but it said revenue from such credits will be "negligible" in the fourth quarter.

There are also questions about the integration of SolarCity, which lost US$55.5 million in the second quarter.

Musk, who is also SolarCity's chairman, proposed in June that Tesla buy SolarCity in an all-stock offer now worth around US$2.45 billion. Shareholders of both companies will vote on the proposal on November 17.

Musk said he thinks SolarCity would be neutral or "perhaps a cash contributor" in the fourth quarter if the merger were approved.

- AP