Facing the ongoing overall decline in the automotive market and intensifying competition in the electric vehicle industry, $Tesla (TSLA.US)$ still delivered a third-quarter profit turnaround report, benefiting from record profits in the energy storage business, as well as production and material cost reductions in autos.

In terms of the automotive business, Tesla reiterated its plans to start production of new models such as ultra-low-priced cars in the first half of next year, and announced that the electric truck Cybertruck, which began deliveries in November last year, achieved its first positive gross margin. Despite facing economic challenges, the delivery volume did not turn positive until the third quarter this year, Tesla still expects the full-year delivery volume to slightly exceed last year.

CEO Musk also said at the performance conference call, "Roughly estimated," even with negative external events, the delivery volume next year may increase by 20% to 30%, calling it simply the "best guess" result. Musk mentioned Cybercab, the autonomous taxi business unveiled at the Robotaxi business's first launch event two weeks ago, stating that Cybercab will be mass-produced in 2026 with a goal of producing 2 million units per year.

Some analysts say Tesla's expected delivery volume for this year reflects a rebound in demand for electric vehicles. Tesla mentioned this time that the demand for electric vehicles in the China market continues to surpass that of the USA and Europe, citing this as one of the three major factors in the electric vehicle market.

After the US stock market closed on Wednesday, October 23, Tesla announced the financial data for the third quarter of 2024.

1) Main financial data

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

EPS: In the third quarter, non-GAAP diluted earnings per share (EPS) were $0.72, an increase of nearly 9.1% year-on-year, with analysts expecting $0.6, a 43% decrease from the second quarter.

Gross Margin: In the third quarter, gross margin was $4.997 billion, a 19.6% year-on-year increase. Gross margin rate in the third quarter was 19.8%, an increase of 1.95 percentage points, or 195 basis points. Analysts expected a gross margin of 16.8%, lower than the 18% in the second quarter.

Operating Profit: Operating profit in the third quarter was $2.717 billion, a 54% year-on-year increase. Analysts expected $19.6 billion, a 33% decrease from the second quarter. Operating margin in the third quarter was 10.8%, an increase of 323 basis points. Analysts expected 8%, while the second quarter was at 6.3%.

Net Income: Non-GAAP net income in the third quarter was $2.505 billion, an 8.1% year-on-year increase. Net income decreased by 42% compared to the second quarter.

Free Cash Flow: Free cash flow (FCF) in the third quarter was $2.742 billion, a significant 223% year-on-year increase. Analysts predicted $1.61 billion, representing a 34% increase from the second quarter.

2) Segmented business data

Autos: Automotive business revenue in the third quarter was $20.016 billion, approximately 2% year-on-year growth. Revenue declined by 6.5% compared to the second quarter.

"Carbon Sales": Within the automotive business, the so-called "Carbon Sales" revenue from selling carbon emission credits in the third quarter was $0.739 billion, an increase of 33.4% year-on-year with a 17% decrease from the previous quarter.

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

Services and other: In the third quarter, the revenue of services and other businesses 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, the stock fell by about 2% on Wednesday. $Tesla (TSLA.US)$ The stock price rose after hours and continued to rise; as of the time of writing, Tesla's stock price rose nearly 12% after hours.

The gross margin in the third quarter rose instead of falling, with the gross margin of the auto business exceeding expectations, rising to 17.1%. 'Carbon sold' revenue hit the second-highest single-quarter.

The financial report shows that Tesla's revenue accelerated in the third quarter compared to the second quarter, with a growth rate of nearly 8%, which is still lower than the nearly 9% expected by analysts. The profit performance brought surprises.

Previously, comments suggested that the sales improvement would lead to profit growth. It was expected that Tesla's demand-stimulating expenses and rising production costs for new cars would cause a year-on-year decline in EPS. The financial report this time shows that Tesla's EPS growth in the third quarter turned positive from negative, with a year-on-year increase of over 9%, while analysts had expected a nearly 9.1% decline.

In the third quarter, Tesla's gross margin increased by 195 basis points year-on-year, while analysts expect a decrease of about 110 basis points. More importantly, excluding 'carbon sales' revenue, the gross margin of the automotive business rose to 17.1%, an increase of about 250 basis points from the second quarter, while analysts expect the gross margin to increase by 20 basis points to 14.8% from the second quarter's 14.6%.

According to Tesla's financial report, profits are still affected by the decline in the average selling price (ASP) of cars, and the improvement in profitability is mainly driven by the following factors:

• Cost reduction per vehicle, including lower raw material costs, freight, and tariffs; and growth in energy storage and service business margins.

• Related to functions such as Cybertruck and the smart summon feature Known as Actually Smart Summon (ASS), confirmed Full Self-Driving (FSD) revenue increased year-on-year.

• Increase in 'carbon sales' revenue.

• Increase in car delivery volume.

Tesla's Chief Financial Officer (CFO) Vaibhav Taneja stated on the conference call that the cost per vehicle in the third quarter hit a historic low, pledging that Tesla will continue to focus on cost reduction.

tesla's mentioned increase in revenue from 'carbon sales' refers to a year-on-year increase, with third-quarter 'carbon sales' revenue decreasing by 17% compared to the second quarter, but increasing by over 30% year-on-year, reaching the second-highest level on record. Tesla states this is 'because other original equipment manufacturers (OEMs) still lag behind in meeting emission requirements'.

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

Some analysts believe that excluding 'carbon sales' revenue, Tesla's profit growth in the third quarter comes from reducing the cost of producing each vehicle and materials, while the energy storage business is now performing better.

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

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

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

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

Production of more affordable models and other new cars is expected to begin in the first half of next year, with a slight increase in deliveries expected this year.

In addition to profit improvement, the Cybertruck was another big surprise in the third-quarter financial report. Tesla stated that Cybertruck production volume in the USA increased compared to the previous quarter, and the gross margin of this business turned positive for the first time. The factory for preparing Semi is currently in progress, with production expected to begin by the end of 2025.

Regarding other automotive businesses, Tesla still plans to start production of new vehicles, including more affordable models, in the first half of 2025. These new vehicles will utilize parts of the next-generation platform and some parts of the existing platform for production, and will be manufactured on the same production line as the existing vehicle series.

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

Tesla stated that despite ongoing macroeconomic challenges, it anticipates a slight increase in car deliveries in 2024 compared to the previous year. This forecast implies that Tesla's deliveries in the fourth quarter of this year will surpass the highest single-quarter record set in the third quarter.

Tesla announced at the beginning of this month that third-quarter deliveries increased by 6.4% year-on-year, achieving year-on-year positive growth for the first time this year, still below market expectations, with sales down 2.3% year-on-year over the first three quarters of this year. In order to match last year's annual sales by the end of this year, Tesla would need to sell over 510,000 vehicles in the fourth quarter, an increase of over 30,000 vehicles compared to the same period last year.

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

Tesla stated that this approach 'will result in cost reductions lower than previously expected, but will allow us to cautiously increase car production in a more efficient manner during uncertain times. This will help us fully utilize our projected maximum capacity of nearly 3 million vehicles, increasing production by over 50% compared to 2023 before investing in new production lines.'

AI training computation volume in the third quarter increased by over 75%. It is expected that by the end of this month, there will be a cluster of 0.05 million NVIDIA H100 chips at the Texas factory.

Tesla introduced in the financial report the progress made in the third quarter by the Full Self-Driving (FSD) advanced driver assistance system, releasing version 12.5 of the supervised FSD. This version enhances safety and comfort due to increased data and training computations, a fivefold increase in training parameters, and other architectural choices. The plan is to continue expanding these options in the fourth quarter.

In the third quarter, Tesla introduced the Actually Smart Summon (ASS) feature, allowing owners to summon their vehicles within parking lots to drive autonomously to them. Also, FSD (Supervised) was released for Cybertruck users, marking the first implementation of end-to-end neural network deployment on highways.

Tesla emphasized that AI training computation volume increased by over 75% in the third quarter. During the quarter, Tesla deployed a cluster of 0.029 million NVIDIA H100 chips ahead of schedule at the Texas Gigafactory and conducted training, with capacity expected to reach 0.05 million H100 chips by the end of October.

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