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Tesla's Model 3 leads it to another profitable quarter

The company still needs to figure out how to build a profitable $35,000 Model 3.
Roberto Baldwin, @strngwys
January 30, 2019
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Roberto Baldwin / Engadget

Sometimes it's best to come out and say things won't be as good as they were last quarter. That's what Tesla CEO Elon Musk did on January 18th and today's fourth-quarter results are pretty much on par with that post from two weeks ago.

Tesla's 2018 fourth-quarter results showed the company still made a profit ($139.5 million), but it was smaller than that of the third quarter ($311.5 million). For the quarter, the company posted $7.23 billion in revenue. Last year's revenue was $3.29 billion. Overall for 2018 it reported $21.4 billion in revenue but lost $1 billion.

A lot of this had to do with Model 3 sales which accounted for 80 percent of all EV sales in the US in 2018 according to Musk. Tesla had been struggling to meet production goals set by Musk at the beginning of the year. While it seems to have hit its stride (it sold 140,000 Model 3s in 2018), the automotive side of the company still needs to figure out how to build a $35,000 Model 3 that actually makes a profit by the middle of 2019. But it seems to be on the right track.

In its investor letter, it stated, "the labor hours per Model 3 vehicle declined yet again by roughly 20% compared to Q3 and by about 65% in the second half of 2018 alone. Despite introducing a lower-priced mid-range variant and other headwinds, Model 3's gross margin remained stable in Q4 at over 20%."

Still, it'll be tough to produce a lower cost vehicle that is profitable. The company has already said it would lay off seven percent of its full-time staff while noting that it needed to increase production. The company added 30 percent to its workforce in 2018. "Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35,000 and still be a viable company," Musk said in a public letter to employees.

During the call, Musk announced that a new feature is coming to the vehicles. If the vehicle detects something wrong, like a flat tire, it'll automatically contact roadside assistance. Drivers can cancel the call if they want.

Also, Musk said we might see the Tesla truck sometime this summer and that it would be, "quite unlike anything else."

At the end of the call Musk announced that CFO, Deepak Ahuja would be retiring. Ahuja has been with Tesla twice. Once between 2008 and 2015 and more recently since February 2017. Tesla's VP of finance Zach Kirkhorn will take over the role.

So while Tesla is able to eke out its second profitable quarter in a row (for the first time ever), the company is facing an uphill battle to deliver its promised $35,000. "I'm optimistic about being profitable in Q1," Musk said. In other words, it's business as usual.

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