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Tesla posted a surprise third quarter profit on Wednesday.
The company reported revenue of $6.3 billion versus estimates of 6.45 billion with a gross margin of 18.9% versus estimates of 17.7%.
According to the company’s Q3 2019 Update:
Last year, our story was about ramping the Model 3. While total volumes are expected to grow by approximately 50% in 2019, this year our focus has been cost control and preparing for our next phase of growth.
Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened. Additionally, operating expenses are at the lowest level since Model 3 production started. As a result, we returned to GAAP profitability in Q3 while generating positive free cash flow. This was possible by removing substantial cost from our business.
We have also dramatically improved the pace of execution and capital efficiency of new production lines. Gigafactory Shanghai was built in 10 months and is ready for production, while it was ~65% less expensive (capex per unit of capacity) to build than our Model 3 production system in the US. Continued volume growth and cost control are an important combination for achieving sustained, industry-leading profitability.
Tesla’s revenue was down year-over year, but the company said the percentage of leased vehicles has tripled and alone has impacted revenue by the majority of the YoY decrease.
“We are positioned to accelerate our growth further through Gigafactory Shanghai, Model Y and also through increasing build rates on our existing production lines,” Tesla said in the update. “These capacity increases will allow for higher total vehicle deliveries and associated revenue. We also expect to gradually release nearly $500M of accumulated deferred revenue tied to Autopilot and Full Self Driving features.”