Tesla delivers quarterly profit

For the third quarter of 2018, Tesla reported a net profit, positive cash flow and wider-than-expected margins, delivering on chief executive Elon Musk’s promise to turn the electric carmaker profitable as higher production volumes of its new Model 3 begins to pay off.

Specifically, Tesla reported a net profit of US$312 million; free cash flow of US$881 million, supported by operating cash flow of US$1.4 billion and a Model 3 gross margin of more than 20 per cent.

Tesla reiterated that it expected to repeat its net profit in the current quarter, helping drive the company’s shares up 14 per cent in after-hours trading.

"Q3 2018 was a truly historic quarter for Tesla," said Tesla's letter to investors. "The 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."

Tesla also noted that the mid-sized premium sedan market in Europe is more than twice as big as the same segment in the US.

Tesla is bringing the Model 3 to Europe early next year and expects to start taking orders in Europe and China for Model 3 before the end of this year.

To increase the affordability of Model 3, Tesla is accelerating its manufacturing timeline in China.

The company aims to bring portions of Model 3 production to China during 2019 and to progressively increase the level of localization through local sourcing and manufacturing. Production in China will be designated only for local customers.

"We expect gross margin for Model 3 to remain stable in Q4 as manufacturing efficiencies and fixed cost absorption offset a slightly lower trim mix and the negative impact of tariffs from Chinese sourced components," added Tesla.