Good morning,

I was up last night to catch the results from Tesla ($TSLA) - what great relief that I didn't have a position in it!

This morning, I think I'll say a few words about that before moving on to discuss:

Tesla ($TSLA)

  • Share price: $298 after hours (+17%)
  • No. of shares:179 million
  • Market cap: $53.3 billion

Q3 2019 Update (pdf - external link)

This was an incredible result from Tesla, and I'm very pleased that I had no position in the stock last night!

What appears to have happened (though many of the bears don't believe it yet) is that Tesla has achieved a new level of fiscal discipline. This would be the combination of both learning how to make its cars more efficiently, and also trimming a lot of the fat from its overhead expenses.

This was necessary, since revenues have been under pressure.

This goes back to a very important point about how car sales and revenues are interpreted. Tesla and Elon Musk are very proud that have they have been able to sell all the vehicles they produce, but I don't necessarily agree that this is something to be proud of - surely what matters is average selling prices (ASP)! There should be no problem moving metal if you are constantly cutting prices, and that is what Tesla has been doing.

Average selling prices declined again in Q3, due to the mix effect of selling more of the cheap Model 3's, and lower ASPs on all models.

Therefore, despite delivering more cars, the company's Q3 automotive revenues ended up declining by 12% to $5.3 billion, compared to Q3 last year. Automotive revenues were also lower compared to the most recent quarter this year.

Fortunately for Tesla, its operational improvements led to an improvement in automotive gross margin to nearly 23% - this is still lower than Q3 last year, but it is the best result so far this year.

Central overheads also declined by the best part of $200 million for the quarter.

The final result was operating income of $416 million. After the hefty interest bill, net income was…

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