Tesla Breaks Another Record, But Did It Break Even?

(Bloomberg Opinion) -- Tesla Inc.’s quarterly deliveries announcements are not what they were, mainly because they’re so brief these days. Wednesday evening’s still managed to spark a 4% sell-off in  immediate after-hours trading. On one level, that barely counts given this stock’s volatility. On the other, there were a couple of nuggets in the release that warrant watching.

Most obviously, Tesla didn’t quite hit the 100,000 deliveries number CEO Elon Musk told employees was within reach in an email that leaked last week (and sparked a 6% rally, naturally). As any reporter covering the Dow will tell you, round numbers exert a mysterious hold on investors, so being 3,000 shy of six-figure deliveries will have dampened animal spirits somewhat. And Tesla now needs to deliver almost 105,000 in the fourth quarter to make the low end of annual guidance.

More importantly, though, deliveries are up by less than 3,000, or 1.7%, from the second quarter. It’s a new record, yes. But as I wrote back in July, record sales aren’t translating into profits. As more Model 3s at lower prices enter the mix, and with sales of premium Models S and X having declined, moving more metal isn’t doing much for margins. Deliveries of Models S and X declined slightly in the quarter just gone, dropping to 18% of the mix. 

Another nugget is that an unusually high proportion of vehicles were leased rather than sold – something Tesla reported in this announcement, unlike the prior quarter’s deliveries release. Some 15% of Models S and X were leased, meaning regular sales fell by 7% versus the prior quarter. About 8% of Model 3s were leased, meaning regular sales of those were also down versus the prior quarter, albeit very slightly. While this may have boosted the headline delivery number, it could exacerbate Tesla’s headwinds on cash flow.

We now have to wait about a month to see what the impact will be on the actual financials. Tesla says it’s entering the fourth quarter with a bigger backlog of orders. And there is a wildcard to consider in the form of Tesla potentially booking deferred revenue related to so-called “Full Self Driving” capabilities on previously delivered vehicles now that it has released its “Smart Summon” feature (not without mishap, it seems).

That aside, what is weighing on the stock, as it has for much of this year, is that bigger orders, deliveries and production haven’t been translating into what ultimately counts: profits. Based on Wednesday’s peek under the hood, it looks like that pattern could repeat.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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