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Tesla Third Quarter 2018 Update
• GAAP net income of $312M, non-GAAP net income of $516M
• Operating income of $417M and operating margin of 6.1%
• Free cash flow of $881M supported by operating cash flow of $1.4B
• $3.0B of cash and cash equivalents at Q3-end, increased by $731M in Q3
• Model 3 GAAP and non-GAAP gross margin > 20% in Q3
• Reaffirm expectation of continued GAAP net income and free cash flow in Q4
Q3 2018 was a truly historic quarter for Tesla. Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume. With average weekly Model 3 production through the quarter (excluding planned shutdowns) of roughly 4,300 units per week, we achieved GAAP net income of $312 million. We also delivered on our internal cost efficiency targets, leading to GAAP Model 3 gross margin of more than 20%, which exceeded our guidance. Finally, our total cash increased by $731 million and we had free cash flow (operating cash flow less capex) of $881 million despite less than 10% of that amount coming from key working capital items (payables, receivables, and inventory).
Model 3 is attracting customers of both premium and non-premium brands, making it a truly mainstream product. We are thankful to our customers for being such strong advocates of our products and mission.
The Model 3 production system stabilized in Q3. We went from a steep S-curve to more gradual monthly improvements. Among other things, we made the changes necessary to enable production of an All-Wheel Drive (AWD) version of Model 3, and we did this without disrupting our production rate. We started the quarter producing only Rear Wheel Drive (RWD) Model 3s and ended the quarter producing almost entirely AWD cars. Even though AWD cars are significantly more complex to build, we produced 5,300 Model 3s in the last week of Q3.
Labor hours per Model 3 decreased by more than 30% from Q2 to Q3, falling for the first time below the level for Model S and X. In Q4, we will focus even further on cost improvements while continuing to increase our production rate.
US Passenger Car sales in Q3
US vehicle inventory – Days of sales
Vehicle delivery and logistics were our main challenges in Q3 as our delivery system went through a similar “ramp” to what our production system went through in Q2. Fortunately, these challenges are easier to solve than vehicle manufacturing, and we made improvements through the quarter. One of the most significant improvements was the expansion of direct deliveries where our employee delivers the car wherever the customer would like. We believe delivering vehicles to the front door of a customer’s house or office is superior from both a cost and customer satisfaction perspective.
Despite logistical challenges earlier in the quarter, our US inventory at the end of Q3 (including customer vehicles in transit, test drive vehicles, service loaners and engineering fleet – all of which accounted for the vast majority of our inventory) remains the lowest in the industry when measured in terms of days of sales. Even when compared to our own history, our vehicle inventory level at the end of Q3 was the lowest in over two years in terms of days of sales.
The following information was filed by Tesla, Inc. (TSLA) on Wednesday, October 24, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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