Tesla has posted its best – and fifth consecutive – profitable quarter, thanks to record production and deliveries as the electric vehicle maker and battery storatge supplier bounced back from shutdowns in early 2020 due to the pandemic.
“Q3 was our best quarter in history,” said Tesla CEO and co-founder Elon Musk said at the company’s Q3 2020 earnings call from Fremont this morning (Australian time).
Tesla delivered net income of $US809 million, an operating margin of 9.2%, and generated more than $US1.4 billion in free cash flow. With some $US14 billion in cash and equivalents, Tesla is now readying to ramp up production of the Model Y, the fourth in its passenger car series after the Models S, X and 3.
The EV maker – now easily the most valuable car maker in the world with a market cap of around $US400 billion – pocketed additional income by selling regulatory credits to other car makers to help them meet new vehicle emissions targets. It has received $US1.2 billion in regulatory credit payments from other car makers so far in calendar 2020.
While there has been uncertainty about whether Tesla can achieve its forecast of 500,000 electric cars delivered by the end of 2020 due to pandemic factory shutdowns, Musk said the company believes it will still deliver on the 170,000 or so sales needed in the fourth quarter to reach that, “with tight execution throughout the team.”
Model Y ramp up
With its Shanghai factory now reaching capacity production of the 250,000 Model 3s annually, the company’s focus is now turning to the next phase – Model Y production.
Tesls says as Shanghai ramps up, its Fremont plant will reach full capacity Model Y production by the end of 2020, with production capacity of both Model Y and Model 3 sitting at 500,000 a year.
CFO Zachary Kirkhorn also said that the company expects its investment in making the Model 3 in Shanghai and Model Y in Fremont will be paid for in full by year’s end.
As Tesla ramps up production of the Model Y, Kirkhorn said production costs will continue to come down, increasing Tesla’s margin on vehicles. The cost of making the Model Y should eventually match that of the Model 3.
“Overall for the quarter I think it was quite a good story for the products,” Kirkhorn said.
Meanwhile, construction of Tesla’s Berlin, Germany, and Austin, Texas, factories continue, with production expected to commence in 2021 from both factories, at first in low volume before rapidly ramping up throughout 2022, said Musk.
Cybertruck “better than what we showed”
Musk added that when Tesla does start deliveries of the Cybertruck from Austin it will be a much improved model.
“At Tesla we really aim to make the car that is delivered better than the car that is unveiled. That’s goal with Cybertruck,” he said, describing many “small improvements” and underlining the challenges of developing new technologies such as the Cybertruck’s hard exoskeleton.
Cell constraints
One of the main factors holding back Tesla’s growth – particularly the Semi electric truck – is the problem of battery cell supply, said Musk.
Asked about the impact that the Semi might have on the logistics industry, Musk said that Tesla had “over and over again” run into cell production limitations, and that the company needed to solve this before it could ramp up production of the Semi, hence its work on the new 4680 batteries first revealed at Battery Day in September.
In the meantime, Musk also confirmed that Tesla is working with a third party to develop megawatt chargers that would be available to all its customers to ensure that when the Tesla Semi does go into volume production, there will be as little time lost charging.
See also: “We just need more cells”: Musk laments lack of battery capacity
A conglomerate of start-ups
Musk underlined the effort that Tesla is putting into developing many new technologies, from its 4680 batteries which he has revealed will first be made at scale in Berlin, to its full self-driving (FSD) software and hardware which will now be released “very slowly”.
Musk had shared on Wednesday (US time) that Tesla’s full-functioning FSD update had begun rolling out to a small number of beta testers. Today he added the company would “see how it goes” because “the world is a complex and messy place”, but that he expects a “wide release by the end of this year”.
FSD beta rollout happening tonight. Will be extremely slow & cautious, as it should.
— Elon Musk (@elonmusk) October 20, 2020
The strength of Tesla lies in its ability to invent new technology from scratch, said Musk, adding that he thinks Tesla is a “magnitude for integrated than other companies”, or that at the very least if it is not, it will be.
“What other car companies do even in auto segment, is a small subset of what Tesla is,” he said.
“We design and build so much more of the car than other OEMs who will largely go to a traditional supply base,” he said, referring to the legacy approach as “catalogue engineering” which is “not very adventurous.”
Musk also highlighted the strategy that Tesla is taking in using the 4680 packs as a structural element of the car, saying it delivers more value to the vehicle by serving two purposes, and will eventually make the skateboard module designs used by other OEMs obsolete because they will, as with jet planes that did not have fuel tanks integrated into the wings, not be competitive.
“It’s just that if you have a structural pack delivering value to car, then anything that doesn’t do that is going to weigh more, cost more, and same goes for front and rear castings – we’re trying to make the car like you make the toy – it’s got to be real cheap and look good,” he said.
Bridie Schmidt is associate editor for The Driven, sister site of Renew Economy. She has been writing about electric vehicles since 2018, and has a keen interest in the role that zero-emissions transport has to play in sustainability. She has participated in podcasts such as Download This Show with Marc Fennell and Shirtloads of Science with Karl Kruszelnicki and is co-organiser of the Northern Rivers Electric Vehicle Forum. Bridie also owns a Tesla Model Y and has it available for hire on evee.com.au.