Tesla Expects to be Profitable for First Time Ever in Q3 of 2018

Elon Musk foresees the company to finally be sustainably profitable with an annual vehicle production of 350,000 units.

byRob Stumpf|
Tesla Expects to be Profitable for First Time Ever in Q3 of 2018


Tesla says that its team produced roughly 7,000 vehicles (Model 3, S, and X combined) during the last week of June; that means that Tesla is on track to produce an annual output of 350,000 vehicles, a number which Tesla considers to be sustainable. The company also notes that this number should increase further into its third quarter of 2018, enabling the company to become "sustainably profitable" for the first time in its history.

During the quarterly earnings call, Tesla CEO Elon Musk stated that he believes the company will be manufacturing around 5,000 Model 3s and 2,000 Model S examples per week in the third quarter. In perspective, Tesla was only producing 2,000 vehicles per week at this time in 2017. Tesla still looks to manufacture 10,000 Model 3s per week in the future.

The automaker goes on to boast about the Model 3 firmly holding the number one market share position in July 2018, accounting for 52 percent of sales for all premium mid-sized sedans. In its entirety, the Model 3 sold more vehicles than the other competitors in the class combined.

Tesla Model 3 Market Share, via Tesla

Musk feels that this trend will continue and does not foresee those numbers dropping off in the near future. Tesla confirmed that half of all customers who buy a Model 3 choose dual motor or performance variants. However, it is unsure if this will be a continued trend in the future.

In terms of profitability, Musk states that he feels comfortable to say that Tesla should be cash flow positive in all quarters going forward, as well as profitable, so as long as there are no economic downturns to stymie growth.

Tesla plans to continue increasing its production numbers over the next several years with the opening of Gigafactory 3 in China. After learning from its previous Gigafactory production, Tesla expects to invest $2 billion ("maybe less" says Musk) in Gigafactory 3 and maintain a 250,000 vehicle per year rate at that plant. This includes both vehicle and battery pack production, as well as a body shop and all other amenities found Stateside. Musk stated that Tesla will not be raising equity from the public or Tesla's business partners to finance Gigafactory 3, but instead plans for loans from local banks.

Another way which Tesla has been clawing its way out of "production hell" is through its procedural changes. The company stated that certain procedures have been tweaked to ensure better quality control (Musk has been spending long hours and nights in the body shop) and efficiency while manufacturing the Model 3. These changes included automating certain tasks that were once done manually and defer planned-automated processes in favor of manual ones, stating that some forms of automation were "too fancy" for what Tesla needed to start with and simply added unnecessary complexity. Tesla mentions that it is not backing away from automation, however it is reviewing some of the procedures which may not have sped up production. The vast majority of the process is automated and is projected to continue to increasing in automation going forward.

Musk also tested out a new model of vehicle delivery that Tesla plans to expand on which it is calling "direct delivery." With this delivery model, Tesla will look to take finally produced vehicles directly to the customer's home, workplace, or wherever they specify upon ordering.