Tesla surprises with $312M profit for Q3 as Model 3 margins soar past 20%

Oh no I was wrong about everything, Tesla is brilliant after all I regret all my pronouncements about the end of Tesla early next year. Damn I’ve lost a fortune on shorting it!……. Yeah right I still haven’t invested money either way on this, I congratulate Elon for pulling off this brilliant stunt and for Long term investors sake I hope I can keep pulling it off, I still say come debt repayment time that’s the day of reckoning then we will find out who was right and who was wrong. My opinion on Tesla’s collapse next year has not changed sorry folks.

Okay. Let’s talk about the debts, shall we?

Prior to the results coming out, analysts were expecting anything from a $200M loss to a $75M profit. But the consensus was around zero. At that break-even consensus, analysts were saying that Tesla would probably need to raise money to cover the debts coming in the next six months, although some were saying they could scrape through.

What actually happened was a $312M profit. So they are around $300M up on expectations. Their available cash is up too, at around $3B, which is a very long way up from what anyone was expecting.

Here are debts does it need to pay in the near future:

• $230M convertible bond, payable in November.
• $157M non-convertible loan due in December.
• $920M convertible bond due in March.

The November bond could be paid in stock, but only if the stock hits $520. That’s not going to happen (I’m an optimist, but I’m not crazy!), so they’ll need to pay that. Good news: they already had enough money for that.

The December loan is pretty small, and again they already had enough money. By December, there should be more profit available to pay for it, but let’s ignore that for now. Thankfully there’s still quite a bit in the bank, so it can be paid without a problem.

But nobody ever doubted that they could pay these two. The problematic one was always going to be that big one in March.

Now the March bond is convertible at $360, which means that if the share price is $360 or above then they don’t have to pay it; it converts to stock. The stock price right now is still fluctuating after the news of the results, but it has been as high as $330 overnight after the results came out. It really isn’t difficult to imagine it going above $360 if the next quarter’s results are also good.

Even if it doesn’t get to $360, and they do have to pay it off, the results today give them $300M breathing room. That’s a third of the total covered already. And that’s without considering any further profit made in the meanwhile. Suddenly it’s not such a crazy idea that they might be able to pay it off in full. After all, they have $3B in the bank right now.

Sure, it’s going to hurt if they do have to pay it in cash; that cash could much better be used for investing in new equipment. But they can do it if they need to. That wasn’t clear until yesterday, but with the results in, it is now clear that they will be able to pay this debt, even if the next two quarters aren’t quite as good as this one.

The best case is still that the stock goes above $360 and they can convert the bond to stock, because that way they’ll have a billion extra in the bank to play with with no strings attached. They won’t be counting their chickens until it’s a done deal, but you can be sure that’s the result they’ll be hoping. But until it happens they’ll need to work on the assumption that they’ll need to pay the cash, so they’ll be cautious about their spending for the next six months.

There are, of course, more loans and bonds to pay off further down the line, but it’s those three that have had the analysts wringing their hands, mostly the big one in March. The remaining debt is far enough away that it isn’t an issue for now – the largest one doesn’t come due until 2025 – so if Tesla can get over these three then they’re basically home and dry.

Spudley brilliant and very technical and well researched analysis thank you for that.

Oh no I was wrong about everything, Tesla is brilliant after all I regret all my pronouncements about the end of Tesla early next year. Damn I’ve lost a fortune on shorting it!……. Yeah right I still haven’t invested money either way on this, I congratulate Elon for pulling off this brilliant stunt and for Long term investors sake I hope I can keep pulling it off, I still say come debt repayment time that’s the day of reckoning then we will find out who was right and who was wrong. My opinion on Tesla’s collapse next year has not changed sorry folks.

Of course Tesla could pay it off or convert it but it is a lot of money, with the march of competition, the premium pricing, the fact autonomy is lagging behind, the still difficult manufacturing situation and need for further investment to develop the much needed Model Y and the huge reliance on loans, bonds and shareholders, also diversity is often a strength in this case Elon is cracking under trying to run all these companies. I appreciate the stress may be intense perhaps partly explaining his absurd behaviour. Is it all going to work out great, well he is the Tucker, the Delorean or more appropriately the Freddie Laker of his day all three men were brilliant.Tucker did things with that car that were decades ahead of their time, Delorean had great vision but manufacturing issues, incomplete development, cutting corners, government loans, a difficult economic climate and then his ill fated involvement with drugs killed his car company, Freddie was a genius he invented the budget airline something that became a mainstream successful business model 30 years later but the big experienced airlines ganged up on him undercut him and destroyed his airline. Elon Musk has to overcome all the problems all three men faced the challenge to keep all these plates spinning while jumping these hurdles is monumental. I worry about the big loans and myriad of challenges the exodus of executives and the long term sustainability of his business strategy. Car companies which is what Tesla actually is have much lower evaluations and share prices one day Tesla will fall to those levels. Goodluck folks on the $360 share price in march its going to be tight perhaps collectively you could buy more shares and force it above the required level? I think Nick Leeson tried to do that to the Asian market to wipe out his debt problem but it kind of backfired Barings Bank was destroyed and he went to prison but it could have worked? I wouldn’t want to be in Elons shoes but if I was I’d step back from Social Media employ Gordon Murray Design to rationalise the design, grab some mass production engineers from a Japanese Car manufacturer getting the perfect just in time processes in place, I’d stop making promises I will never keep and major on making my car unique with new innovation in packaging design and aero. Battery wise I’d be exploring new sustainable materials and to compete with petrol cars look at ways of having the battery pop in and out so a fill could be as fast. Goodluck folks those are my thoughts.