Unexpected Turnaround in Profitability! Tesla's EPS for the third quarter increased by 9% instead of decreasing, Cybertruck's gross profit turned positive for the first time, and the stock surged more than 10% after hours | Financial Report Insights

Faced with the continued overall decline in the automotive market and intensified competition in the electric vehicle industry, Tesla still delivered a profitable turnaround in the third quarter, thanks to record-high profits from its energy storage business and decreasing production and material costs for its vehicles.

In terms of its automotive business, Tesla reiterated its plans to start producing new models such as ultra-low-cost vehicles in the first half of next year, and announced that the electric truck Cybertruck, which began deliveries in November last year, achieved a positive gross margin for the first time. Despite facing challenges in the economic environment, Tesla only saw positive growth in deliveries until the third quarter this year, and still expects the total deliveries for the year to slightly exceed last year's.

CEO Elon Musk also mentioned during the earnings call that, "roughly speaking," even with negative external events, deliveries next year could increase by 20% to 30%, calling it the "best guess" result. Musk referred to the prototype of the autonomous driving taxi service Robotaxi showcased at the first presentation two weeks ago, stating that the Cybercab will be mass-produced in 2026 with a target of producing 2 million units annually.

Some analysts believe that Tesla's expectations for deliveries this year reflect a rebound in demand for electric vehicles. Tesla mentioned this time that demand in the Chinese electric vehicle market continues to surpass that of the United States and Europe, citing it as one of the three major factors in the electric vehicle market.

After the U.S. stock market closed on Wednesday, October 23, Tesla released its financial data for the third quarter of 2024.

1) Key Financial Data

Revenue: Revenue for the third quarter was $25.182 billion, a year-on-year increase of over 7.8%, with analysts expecting $25.43 billion, a 2% increase from the second quarter.

EPS: Non-GAAP diluted earnings per share (EPS) for the third quarter was $0.72, a nearly 9.1% increase year-on-year, with analysts expecting $0.60, a 43% decrease from the second quarter.

Gross Profit: Gross profit for the third quarter was $4.997 billion, a 19.6% increase year-on-year, with a gross margin of 19.8%, a 1.95 percentage point increase year-on-year. Analysts expected a gross margin of 16.8%, while the second quarter had a gross margin of 18%.

Operating Profit: Operating profit for the third quarter was $2.717 billion, a 54% increase year-on-year, with analysts expecting $1.96 billion, a 33% decrease from the second quarter. The operating profit margin for the third quarter was 10.8%, a 323 basis point increase year-on-year, with analysts expecting 8%, while the second quarter was 6.3%.

Net Profit: Non-GAAP net profit for the third quarter was $2.505 billion, an 8.1% increase year-on-year, with a 42% decrease from the second quarter.

Free Cash Flow: Free cash flow for the third quarter was $2.742 billion, a 223% increase year-on-year, with analysts expecting $1.61 billion, a 34% increase from the second quarter.

2) Segment Data

Automotive: Revenue for the automotive business in the third quarter was $20.016 billion, an approximately 2% increase year-on-year, with a 6.5% decrease from the second quarter"Carbon Sales": In the automotive business, the so-called "carbon sales" revenue obtained from selling carbon emission credit quotas in the third quarter was $739 million, a year-on-year increase of 33.4% but a decrease of 17% from the previous quarter.

Energy Storage: The revenue from energy generation and storage business in the third quarter was $2.376 billion, a year-on-year increase of 52.4%, and a 100% increase from the second quarter.

Services and Others: The revenue from services and other businesses in the third quarter was $2.79 billion, a year-on-year increase of 29%, and a 221.3% increase from the second quarter.

After the financial report was released, Tesla's stock price fell by about 2% on Wednesday, but rose after-hours and continued to rise. About two hours after the U.S. stock market closed, the after-hours increase expanded to over 10%.

The gross profit margin in the third quarter rose instead of falling, with the gross profit margin of the automotive business exceeding expectations and rising to 17.1%. The "carbon sales" revenue reached a quarterly high.

The financial report shows that Tesla's revenue growth in the third quarter accelerated compared to the second quarter, with an increase of nearly 8%, which was slightly lower than analysts' expectations of nearly 9%. The performance in terms of profitability brought surprises.

Previously, it was expected that the improvement in sales volume would lead to a sequential increase in profitability. It was anticipated that due to Tesla's efforts to stimulate demand and the corresponding increase in expenses, as well as the rising costs of producing new cars, the EPS profit year-on-year decline was expected. The financial report this time showed that Tesla's EPS growth in the third quarter turned positive, with a year-on-year increase of over 9%, while analysts had expected a year-on-year decline of nearly 9.1%.

The gross profit margin of Tesla in the third quarter increased by 195 basis points year-on-year, while analysts had expected a decrease of about 110 basis points. More importantly, excluding the "carbon sales" revenue, the gross profit margin of the automotive business rose to 17.1%, an increase of about 250 basis points from the second quarter, while analysts had expected the gross profit margin to only increase by 20 basis points from 14.6% in the second quarter to 14.8%.

Tesla's financial report stated that profitability was still affected by the decrease in the average selling price (ASP) of cars, and the improvement in profitability was mainly driven by the following factors:

• Decrease in the cost per vehicle, including lower raw material costs, shipping costs, and tariffs; growth in gross profit from energy storage and service businesses.
• Growth in confirmed FSD revenue related to features such as Cybertruck and the Actually Smart Summon feature.
• Increase in "carbon sales" revenue.
• Growth in vehicle deliveries.

Tesla's Chief Financial Officer (CFO) Vaibhav Taneja stated during the conference call that the cost per vehicle in the third quarter reached a historic low, and Tesla is committed to continuing to focus on cost reductionWall Street News noted that Tesla's increase in "carbon sales" revenue refers to a year-on-year growth. In the third quarter, the revenue from "carbon sales" decreased by 17% compared to the second quarter, but increased by over 30% year-on-year, reaching the second-highest level on record. Tesla stated that this was "because other original equipment manufacturers (OEMs) are still lagging behind in meeting emission requirements".

Energy storage business achieved a record gross profit margin of 30.5% in the third quarter, and Shanghai factory is expected to start delivering Megapacks in the first quarter of next year.

Some analysts mentioned that excluding "carbon sales" revenue, Tesla's profit improvement in the third quarter came from reducing the cost of producing each vehicle and material costs, while the energy storage business is performing better now.

According to Tesla's financial report, despite the decrease in production of energy storage battery packs Megapack, the gross profit margin of the energy storage business in the third quarter reached 30.5%, setting a record for the single-quarter gross profit margin in that business, with an increase of 596 basis points compared to the previous quarter.

The report mentioned that the installation volume of energy storage battery Powerwall set a new record for two consecutive quarters. Production of Powerwall 3 and the Lathrop Megafactory continues smoothly, with the Lathrop factory producing 200 Megapacks per week, operating at an annual rate of 40 GWh.

Regarding the construction of the Shanghai Megafactory for super energy storage, Tesla stated that the Shanghai factory is on track to start delivering Megapacks in the first quarter of 2025.

Tesla expects that the deployment volume of the energy storage business in 2024 will more than double compared to 2023.

In the first half of next year, Tesla plans to start production of new models, including more affordable vehicles, and expects a slight increase in delivery volume this year.

In addition to profit improvement, Cybertruck was another big surprise in the third-quarter financial report. Tesla stated that Cybertruck production in the United States increased compared to the previous quarter, and the gross profit margin of this business turned positive for the first time. The factory preparing for Semi production still aims to start production before the end of 2025.

For other automotive businesses, Tesla plans to start production of new vehicles, including more affordable models, from the first half of 2025. These new vehicles will be produced using the next-generation platform and certain parts of the existing platform, and will be able to be produced on the same production line as the existing vehicle series.

Tesla CEO Musk mentioned during the earnings call that the price of affordable electric vehicles will be below $30,000, but did not confirm the rumored price of $25,000 for the Model 2.

Tesla stated that despite ongoing macroeconomic challenges, it expects a slight increase in car deliveries in 2024 compared to the previous year. This forecast implies that Tesla's delivery volume in the fourth quarter of this year will surpass the highest single-quarter record set in the third quarterTesla announced at the beginning of this month that its third-quarter deliveries increased by 6.4% year-on-year, achieving year-on-year positive growth for the first time this year, but still below market expectations. Sales in the first three quarters of this year decreased by 2.3% year-on-year. In order to match last year's annual sales volume, Tesla will need to sell over 510,000 vehicles in the fourth quarter, which is an increase of over 30,000 vehicles compared to the same period last year.

In the latest financial report, Tesla stated that the company is currently in between two major growth waves. The first wave is the global expansion of the Model 3/Y platform, while the next wave of growth will be driven by advancements in autonomous driving technology and the launch of new products, including those built on Tesla's next-generation vehicle platform.

Tesla mentioned that this approach "will result in a lower than expected decrease in costs, but will allow us to cautiously increase car production in a more capital-efficient manner during uncertain times. This will help us fully utilize the maximum capacity of nearly 3 million vehicles expected, allowing production to grow by over 50% compared to 2023 before investing in new production lines."

AI training computation in the third quarter increased by over 75%, with an expected 50,000 NVIDIA H100 chips at the Texas factory by the end of this month

In the financial report, Tesla introduced the progress made in the third quarter by its advanced driver assistance system, known as FSD. They released the 12.5 version of Supervised FSD, which improved safety and comfort due to increased data and training computation, a five-fold increase in training parameters, and other architectural choices. They plan to further expand these choices in the fourth quarter.

In the third quarter, Tesla introduced the Actually Smart Summon feature, abbreviated as ASS, which allows owners to summon their vehicles in parking lots to drive autonomously to them. They also released FSD (Supervised) for Cybertruck users, achieving end-to-end neural network deployment for highway driving for the first time.

Tesla emphasized that AI training computation in the third quarter grew by over 75%. During the quarter, Tesla deployed a cluster of 29,000 NVIDIA H100 chips at the Gigafactory in Texas for training, with production capacity expected to reach 50,000 H100 chips by the end of October