Tesla Turned A Profit In The Last Quarter, Shocking Wall Street And Skyrocketing Share Prices

Will its Shanghai Gigafactory build Tesla's momentum?

The new Tesla Model Y

Tesla stock soared Thursday as the company revealed its quarterly earnings, posting a profit after steep losses in the last two quarters. At time of writing, Tesla stocks have shot up nearly 15 percent to $290 per share, or $35 per share higher than it had been trading over the past several days. Contrary to Wall Street’s predictions, the company managed to achieve profitability, although its overall revenue declined year-over-year.

Analysts predicted Tesla would deliver between 95,000 and 100,000 cars, and the company managed to split that difference in the third quarter. It ultimately delivered 97,000 cars according to its reporting earlier this month.

Shanghai ready for production

While deliveries and revenue figures haven’t been earth-shattering, investors have a great deal to look forward to as Tesla aggressively expands its production into China. CEO Elon Musk said the company’s Shanghai gigafactory has started trial production runs. In its quarterly update, Tesla said that “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.” With more efficient and cost-effective manufacturing, Tesla hopes to swell its production capacity well past what it’s managed at its Fremont facility.

Margins will be key for Tesla’s momentum moving forward, even as the company surprised more skeptical analysts this time around. The company’s quarterly report said, “Despite reductions in the average selling price (ASP) of Model 3 as global mix stabilizes, our gross margins have strengthened.” In other words, the company has been selling more, lower priced Model 3s than it has been its higher-margin, more expensive Model S and Model X’s. If it can manage to sustain delivery volume and ramp up Shanghai productions without the same teething issues it experienced in the U.S., then the company may well continue to post profits in Q4 2019 and beyond.

The company’s product portfolio will also expand in the coming years, with the arrival of the Model Y crossover, the new Roadster and the much-anticipated, as-yet unnamed Pickup. Tesla recently said it may actually get the Model Y to market ahead of schedule, as its production capacity expands with the new China plant. As the Shanghai plant builds Tesla models to sustain the country’s demand, that should free up capacity to build the Model Y at its Fremont, California plant.