Tesla Reports a Rare Quarterly Profit, Its Biggest Ever

Tesla on Wednesday reported its first quarterly profit in two years and its biggest ever. But for the electric-car maker and its unpredictable chief, the question is whether it can keep making money.

The company’s third-quarter earnings were helped by cost-cutting, spending less on future models, delaying payments to suppliers and, most important, rushing to sell as many cars as possible. It may not be able to do all those things quarter after quarter.

Nevertheless, its chief executive, Elon Musk, said on a conference call with analysts that he expected Tesla to be profitable in the fourth quarter and in “all quarters going forward.” He was declaring in effect that his company was no longer in startup mode.

Tesla reported a $312 million profit for the quarter, thanks to a surge in production and sales of its Model 3 sedan. The company has long promised that the model would help make electric vehicles and Tesla itself a mass-market phenomenon.

The report is a milestone for Musk, whose leadership was called into question in recent months as he faced a lawsuit by regulators over his musings on Twitter about taking the company private. He had also hurled insults against short-sellers and admonished analysts on a call for asking “boring, bonehead questions.”

On Wednesday, he answered analysts’ questions in an even-tempered voice. He did refuse to answer a question about the makeup of the company’s board, saying he would discuss only operational issues.

The profit will help stabilize Tesla’s finances and end a streak of quarters in which the automaker used up nearly $1 billion in cash. In the second quarter, the company reported a $718 million loss.

In the 15 years since it was founded, Tesla has never reported an annual profit. In previous quarters, the company’s costs increased as it made more cars. To finance its operations, Tesla, which also makes solar panels and batteries, has had to sell stock, take out loans and ask customers to make $1,000 refundable deposits for cars and energy products that they might not get for many months.

Tesla ended September with $3 billion in cash compared with $2.2 billion at the end of the previous quarter. The company generated $881 million in free cash flow — cash produced through operations less capital expenditures.

“The cash-flow number is impressive,” said David Whiston, an auto analyst at Morningstar. “That’s a lot of cash for a company their size.”

But the company still must prove it can produce profits consistently. The surge in sales of the Model 3 could cause demand to soften in the fourth quarter.

To become consistently profitable, the company needs the Model 3, which sells for $46,000 to $64,000 before federal and state tax incentives, to be a commercial success. Musk said that the company expected sales to remain strong as it starts shipping the car to Europe in the first three months of next year and Asia after that.

Tesla produced more than 53,000 Model 3 cars from July to September, nearly twice as many as in the previous three months. Deliveries of the Model 3 totaled more than 56,000, about three times as many as in the previous quarter.

“As long as they keep producing more cars than the previous quarter, there’s a good chance they can keep profits going,” Whiston said.

In its report, Tesla said that of the 455,000 Model 3 reservations it reported having in August 2017, fewer than 20 percent had been canceled.

Tesla remains under financial pressure and faces several major challenges. It has to make bond payments of $230 million in November and $920 million in March. It can use stock for the second payment but only if its share price is above $360. At the same time, Tesla hopes to build a factory in China, which will require hundreds of millions of dollars in capital expenses.

As of Sept. 30, Tesla owed its suppliers $3.6 billion, up from $3 billion at the end of the second quarter. The company’s debt totaled more than $10 billion.

Tesla shares closed at $288.50 on Wednesday before its earnings were released, down more than 20 percent from early August. The stock was up 10 percent in after-hours trading.

Tesla next year is supposed to start making a more affordable version of the Model 3 priced at $35,000, and Musk has said that Tesla would lose money on that model if the company produced it now. The cheaper Model 3 is important because the $7,500 federal tax credit available to buyers of Tesla cars will be cut by half on Jan. 1 and phased out entirely over the course of 2019, making the company’s cars more expensive.

Tesla recently began offering a Model 3 priced at $46,000 as an interim step before it can produce the $35,000 version. “We don’t really have the ability to get to $35,000 right away,” Musk said, but he said Tesla was “probably less than six months from that.” Even though Tesla is finally hitting its stride in production, “the company isn’t out of the woods yet,” said Jeremy Acevedo, manager of industry analysis at Edmunds, a market researcher. “The $35,000 Model 3 remains a fantasy, and with the full tax credit for that car now off the table, it will be interesting to see how many buyers are willing to keep waiting for it to be a reality.”

The company is still struggling to deliver cars to customers, which Musk has described as “delivery logistics hell.” The quality of the Model 3 has also come under question as many customers have complained about receiving cars with scratched paint, cracked windows and other defects. Consumer Reports on Wednesday lowered Tesla’s reliability ranking by six places, to 27th out of 29 automakers. The magazine said its members complained about the suspension in the company’s full-size Model S sedan.

The earnings report comes after several turbulent months for Tesla and Musk. Last month the Securities and Exchange Commission sued Musk, accusing him of securities fraud for saying on Twitter that he had “funding secured” to take Tesla private at $420 a share. The plan turned out to be a lot less fleshed out than he had suggested.

o settle the case, Musk agreed to step down as chairman, while retaining the chief executive title. The SEC is continuing to look into the company’s past claims about its production goals, and the Justice Department has also been looking into Musk’s go-private tweet.