Tesla shares soar after crushing third-quarter earnings

Key Points
  • Tesla reported third-quarter revenue of $6.3 billion and earnings per share, adjusted, of $1.86 on Wednesday.
  • Shares spiked more than 20% after Tesla posted the surprise profit and said it was ahead of schedule with a new factory in Shanghai.
Tesla shares surge after strong earnings and delivery numbers — Watch five experts debate the stock
Tesla shares surge after strong earnings and delivery numbers — Watch five experts debate the stock

Tesla delivered a strong third-quarter earnings report after the bell on Wednesday, posting a surprise profit and telling shareholders it is ahead of schedule with a new factory in Shanghai. Shares spiked more than 20% after hours, putting them at their highest price since February.

Here's what the results were versus analysts' expectations:

  • Adjusted earnings per share of $1.86 vs. expected losses of 42 cents per share
  • Revenue of $6.3 billion, vs. expected $6.33 billion, according to Refinitiv consensus estimates

The electric car maker gave investors plenty to look forward to next year. It released a glossy 28-page investor update filled with photos from its new factory in Shanghai where Tesla said it's already begun trial production runs.

The company also said it was ahead of schedule on its long-awaited Model Y crossover, which it now expects to launch by next summer. At the same time, Tesla says it is planning to make a limited run of its Tesla Semi truck next year, and hopes to soon announce the location of its European Gigafactory, where it aims to begin making electric vehicles in 2021.

A photograph of the new Tesla paint shop in the Shanghai Gigafactory provided by the company in its Q3 2019 earnings release.

In its Q3 2019 Update, Tesla said:

"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."

A photo of general assembly in Tesla's new Shanghai Gigafactory, provided by the company with its Q3 2019 earnings release.

Last quarter, Tesla shares dropped after the company reported losses of $1.12 per share and $6.35 billion in revenue. At this time last year, Tesla reported a "historic" third quarter with revenue of $6.82 billion and earnings per share of $2.90.

In Q3, Tesla released over-the-air software updates, including a controversial Smart Summon feature, that lets some Tesla drivers use an app to remotely call and control their cars. The cars can, in some situations, come pick them up from a short distance away, navigating a parking lot without any driver behind the wheel to do so.

Margins will be in sharp focus on today's earnings call, in part, because Tesla launched new Autopilot software upgrades which enabled the company to recognize deferred revenues. The company has been selling more, lower-priced Model 3 vehicles in 2019, and fewer of its higher-priced Model S and Model X's.

The company said in its Q3 2019 report: "Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened."

Specifically, automotive gross margins for Tesla rose to 22.8% in the third quarter, up from Q2 auto gross margins of 18.9%, but still less than the 25.8% automotive gross margins Tesla reported during the third quarter last year. Tesla said that margins were improved in part through "Smart Summon-related deferred revenue recognition, FX and other non-recurring items." It did not specify what the non-recurring items were.

Tesla CFO Zach Kirkhorn said on an earnings call on Wednesday afternoon that the company recognized $30 million in revenue related to the Smart Summon update.

Today's third-quarter earnings report is the first for Tesla since the departure of co-founder and former CTO JB Straubel, and since the company completed the acquisition of two companies: A computer vision startup called DeepScale, and a battery manufacturing firm called Hibar Systems.

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