March 01, 2023

Tesla eyes profitability as Model 3 gobbles up competitors' market share

Tesla's second quarter 2018 earnings report was widely followed by Wall Street investors. CNBC reports, "With a pledge of future profitability and an apology for past bad manners, Tesla CEO Elon Musk was upbeat in his conversation with analysts." And the market liked what they were hearing as "Tesla shares soared as much as 11 percent in after-hours trading." However, after-hours trading gains often reverse — so expect (as always) a rollercoaster ride ahead for this polarizing stock.

Above: Tesla's Model 3 is racing ahead (Image: InsideEVs)

That said, Musk was steadfast in his commitment to fiscal responsibility. Asked about a capital raise, Musk stated, "We certainly could raise money but I think we don't need to and we — yeah, I think it's better to — it is better discipline not to." Musk did note, however, that Tesla will fund its China Gigafactory through a local Chinese bank.

Profitability is coming

Thus, the biggest news came from a fundamental change in Tesla's "financial engineering" strategy (hat tip to Galileo Russell for pointing this out on the earnings call). Musk explained, "From an operating plant standpoint, from onwards I really want to emphasize our goal is to be profitable and cash flow positive for every quarter going forward." And, barring any black swan event, Tesla's stated goal (moving forward) is to be achieving positive GAAP income and cash flow "every quarter from here on out."

Record revenues

Tesla achieved a record $4 Billion in revenue (beating analyst estimates) along with "increased rates of production, improving margins, and cost cutting [which] is helping Tesla hit its goal." And, "Tesla said it produced 53,339 vehicles in the second quarter and delivered 22,319 Model S and Model X vehicles and 18,449 Model 3 vehicles, totaling 40,768 deliveries." For more on Tesla's Q2 numbers, check out the infographic below...

Above: An infographic presentation showcasing highlights from Tesla's Q2 earnings report (Source: AlphaStreet)

Model 3 production is on-track

With Model 3 production, "The company said in July it was able to repeatedly hit its target of producing 5,000 Model 3 vehicles per week... [and] Tesla is now aiming for a 6,000 vehicle per week rate, which it hopes to achieve by the end of August. By year-end it hopes to ramp up to a rate of 10,000 per week."

Model 3 market share dominance

Perhaps the most telling data point can be gleaned when analyzing Model 3's market share growth. In the Shareholder Letter, Tesla states: "In July 2018, Model 3 not only had the #1 market share position in its segment in the US, it outsold all other mid-sized premium sedans combined, accounting for 52% of the segment overall." That segment includes BMW 3 Series, Mercedes C-Class, Audi A4 and Lexus IS.

Above: Model 3 has achieved 52% U.S. market share in the mid-sized premium segment (Image: Tesla)

Tesla's Shareholder Letter also notes, "We continue to generate strong Model 3 demand despite having done almost nothing to try to sell it, and even though Model 3s have only been available to cash/loan purchasers of the long-range battery version with the premium interior package in North America. Demand will accelerate even further once we offer leases, less expensive variants, and orders outside of North America."

Furthermore, "Based on trade-ins that we’ve received so far, we can see that the total addressable market for Model 3 is much larger than mid-sized premium sedans. We are drawing customers from many other segments." In fact, the top five cars Tesla received as trade-ins (per the call) when customers purchased a Model 3 were the Toyota Prius, BMW 3-Series, Honda Accord, Honda Civic, and Nissan Leaf. This list indicates Tesla's audience for the Model 3 could stretch further (across other market segments) than previously predicted.

A kinder, gentler Elon Musk (kind of)

Also surprising — Musk softening a bit and apologizing to analysts for being "impolite" on Tesla's prior earnings call. However, Elon is not shying away from taunting short sellers — something CleanTechnica's Zach Shahan mentioned in his article and (later) alluded to during his comments on the earnings call with Musk.

As the Wall Street Journal (also) pointed out, "Earlier in the day, Mr. Musk had a little fun with a prominent short seller. David Einhorn, the president of hedge fund Greenlight Capital, criticized Tesla and its CEO in a letter to investors Tuesday and wrote that he “is happy that his Model S lease ended” and was “happy to switch to an electric Jaguar.”

Mr. Musk wrote on Twitter: “Tragic. Will send Einhorn a box of short shorts to comfort him through this difficult time.”

Q2 Earnings Call (complete audio recording)

Was there more big news items coming from Tesla's second quarter earnings conference call? Absolutely — updates on future Gigafactories, improvements on the Autopilot front, insights into productions lines, and much, much more. For the full breakdown, it's recommended that you listen to the conference call...