Facing the ongoing overall decline in the automotive market and intensifying competition within the electric vehicle industry, Tesla still managed to turn a profit in the third quarter, thanks to record profits from its energy storage business and reduced production and material costs for its vehicles.

In terms of automotive operations, Tesla reiterated its plan to start producing new models, including an ultra-low-cost vehicle, in the first half of next year. The company also announced that the electric truck Cybertruck, which began deliveries in November last year, achieved a positive gross margin for the first time. Despite economic challenges, Tesla only saw positive growth in deliveries in the third quarter this year, but the company still expects to deliver slightly more vehicles this year than last year.

CEO Elon Musk said in a performance call that, "roughly estimating," even with external negative events, deliveries next year could still grow by 20% to 30%, adding that this is just the "best guess" result. Musk mentioned the prototype vehicle Cybercab showcased at the first unveiling of the autonomous taxi service Robotaxi two weeks ago, stating that Cybercab is scheduled for mass production in 2026 with a target of producing 2 million units annually.

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

On Wednesday, October 23, Eastern Time, after the US stock market closed, Tesla released its financial data for the third quarter of 2024.

1) Key financial data

Revenue: The third-quarter operating revenue was $25.182 billion, a year-over-year increase of over 7.8%, with analysts expecting $25.43 billion, and a year-over-year increase of 2% in the second quarter.

EPS: The third-quarter diluted earnings per share (EPS) under non-GAAP measures was $0.72, a year-over-year increase of nearly 9.1%, with analysts expecting $0.60, and a year-over-year decrease of 43% in the second quarter.

Gross profit: The third-quarter gross profit was $4.997 billion, a year-over-year increase of 19.6%, with a year-over-year increase of 1% in the second quarter; the third-quarter gross margin was 19.8%, a year-over-year increase of 1.95 percentage points, or 195 basis points, with analysts expecting a gross margin of 16.8%, and a gross margin of 18% in the second quarter.

Operating profit: The third-quarter operating profit was $2.717 billion, a year-over-year increase of 54%, with analysts expecting $1.96 billion, and a year-over-year decrease of 33% in the second quarter; the third-quarter operating profit margin was 10.8%, a year-over-year increase of 323 basis points, with analysts expecting 8%, and 6.3% in the second quarter.Net Profit: In the third quarter, the net profit under non-GAAP standards was $2.505 billion, representing an 8.1% year-over-year increase, compared to a 42% year-over-year decrease in the second quarter.

Free Cash Flow: The free cash flow (FCF) for the third quarter was $2.742 billion, marking a 223% year-over-year increase, exceeding analyst expectations of $1.61 billion, and a 34% year-over-year increase in the second quarter.

2) Business Segment Data

Automotive: The revenue from the automotive business in the third quarter was $20.016 billion, showing an approximate 2% year-over-year increase, compared to a 6.5% year-over-year decrease in the second quarter.

"Carbon Credits": Within the automotive business, the so-called "carbon credits" revenue from the sale of carbon emission credits was $739 million in the third quarter, a 33.4% year-over-year increase, and a 17% sequential decrease.

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

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

After the financial report was released, Tesla's stock price, which closed down about 2% on Wednesday, rebounded and turned positive after hours, and continued to rise. About two hours after the U.S. stock market closed, the after-hours gain expanded to over 10%.

In the third quarter, the gross margin not only did not decrease but also increased, with the automotive business gross margin exceeding expectations to rise to 17.1%, and "carbon credits" revenue setting a new quarterly second high.Financial reports indicate that Tesla's revenue growth accelerated in the third quarter compared to the second quarter, with a nearly 8% increase that still fell short of analysts' expectations of nearly 9%. The performance in profitability brought a pleasant surprise.

Previously, there were comments that an improvement in sales was expected to bring about a sequential increase in profitability. Due to Tesla's need to stimulate demand by correspondingly increasing incentive spending, as well as the rising costs of producing new vehicles, it was anticipated that EPS profits would decline year-over-year. The financial report for this quarter shows that Tesla's EPS growth turned positive in the third quarter, with a year-over-year increase of over 9%, while analysts expected a year-over-year decrease of nearly 9.1%.

Tesla's gross margin increased by 195 basis points year-over-year in the third quarter, while analysts expected a decline of about 110 basis points. More importantly, after excluding "carbon credit" revenue, the gross margin for the automotive business rose to 17.1%, increasing by about 250 basis points quarter-over-quarter from the second quarter, while analysts expected the gross margin to only rise by 20 basis points from 14.6% in the second quarter to 14.8%.

Tesla's financial report stated that profitability is still affected by the decline in the average selling price (ASP) of vehicles. The main drivers of increased profitability are:

- A decrease in the average cost per vehicle, including reduced costs of raw materials, shipping, and tariffs;

- Increased gross margins from energy storage and service businesses;

- Confirmed FSD revenue growth year-over-year related to features such as the Cybertruck and the Actually Smart Summon (ASS) smart summoning feature;

- Increased "carbon credit" revenue;

- Growth in vehicle deliveries.

Tesla's Chief Financial Officer (CFO), Vaibhav Taneja, stated in a conference call that the cost per unit vehicle in the third quarter reached a historical low, and he pledged that Tesla would continue to focus on cost reduction.

Wall Street noted that Tesla's aforementioned increase in "carbon credit" revenue refers to year-over-year growth. The revenue from "carbon credit" in the third quarter decreased by 17% quarter-over-quarter from the highest single-quarter record in the second quarter but increased by over 30% year-over-year, reaching the second-highest level on record. Tesla stated that this is "because other original equipment manufacturers (OEMs) are still lagging in meeting emission requirements."Energy Storage Business Achieves Record Gross Margin of 30.5% in Q3; Shanghai Factory Expected to Begin Delivering Megapacks in Q1 Next Year

Comments suggest that, excluding "carbon credit" revenue, Tesla's profit increase in Q3 came from reduced costs per vehicle and material costs, while the energy storage business is now performing better.

Tesla's financial report states that despite a decrease in the production of energy storage batteries Megapack, the gross margin for the energy storage business in Q3 reached 30.5%, setting a new record for the highest single-quarter gross margin, with a sequential increase of 596 basis points.

The report introduces that the installation volume of energy storage batteries Powerwall has set a new record for two consecutive quarters. The mass production of Powerwall 3 and the Super Factory Lathrop Megafactory continues smoothly, with the Lathrop factory producing 200 Megapacks per week, with an annual operating rate of 40 GWh.

Regarding the Shanghai Megafactory, which is under construction for a super energy storage factory, Tesla said that the Shanghai factory is still on track to begin delivering Megapacks in Q1 2025.

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

Production of More Affordable Models and Other New Vehicles to Begin in the First Half of Next Year; Expected Slight Increase in Deliveries This Year

In addition to profit improvement, Cybertruck was another big surprise in the Q3 financial report. Tesla said that the production of Cybertruck in the United States increased quarter-on-quarter, and the gross margin of this business turned positive for the first time. The factory for Semi is currently being prepared, and it is still expected to start production before the end of 2025.For other automotive ventures, Tesla has stated that it still plans to begin production of new vehicles, including more affordable models, starting from the first half of 2025. These new vehicles will be manufactured using parts of the next-generation platform as well as certain components of the existing platform, and they will be able to be produced on the same production lines as the current vehicle series.

Tesla CEO Elon Musk said during an earnings call that the price of the affordable electric vehicle would be below $30,000, but did not confirm the rumored price of the low-cost vehicle Model 2 being $25,000.

Despite ongoing macroeconomic challenges, Tesla expects a slight increase in vehicle deliveries in 2024 compared to the previous year. This forecast implies that Tesla's deliveries in the fourth quarter of this year will break the record for the highest single-quarter deliveries set in the third quarter.

At the beginning of this month, Tesla announced that its third-quarter deliveries increased by 6.4% year-over-year, marking the first positive year-over-year growth this year, but still below market expectations, with a 2.3% decline in sales for the first three quarters of the year. For Tesla to achieve the same annual sales volume as last year, it would need to sell over 510,000 vehicles in the fourth quarter, which is equivalent to an increase of more than 30,000 vehicles compared to the same period last year.

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

Tesla said that this approach "will result in a lower reduction in costs than previously expected, but it allows us to cautiously increase car production in a more efficient capital expenditure manner during uncertain times. This will help us fully utilize the current maximum capacity of nearly 3 million vehicles, increasing production by more than 50% compared to 2023 before investing in new production lines."

In the third quarter, Tesla's AI training computing capacity increased by more than 75%, and it is expected that by the end of this month, the Texas factory will have 50,000 Nvidia H100 units.

Tesla introduced the progress made by its advanced driver assistance system, known as FSD, in the third quarter, stating that it released the supervised FSD v12.5 version during the quarter, which improved safety and comfort due to increased data and training computing, a fivefold increase in training parameters, and other architectural choices, with plans to continue expanding these choices in the fourth quarter.

In the third quarter, Tesla released the Actually Smart Summon feature, which allows owners to summon their vehicles in a parking lot to autonomously drive to their side. It also released FSD (Supervised) for Cybertruck users, marking the first implementation of an end-to-end neural network in highway driving.Tesla emphasized that the computing volume for artificial intelligence (AI) training in the third quarter increased by more than 75%. During that period, Tesla deployed a cluster consisting of 29,000 NVIDIA H100 chips at the Gigafactory in Texas ahead of schedule and conducted training. It is expected that by the end of October, the production capacity will reach 50,000 H100 chips.