Tesla faces major challenge with Model 3 demand, Musk says

31 Jan 2019

Tesla vehicle. Image: boggy22/Depositphotos 

Tesla reports a lower-than-expected profit, but says 2018 was ‘the most pivotal year’ in the automaker’s history.

Tesla made a $139m profit in the final quarter of 2018, its fourth profitable quarter ever, according to an investor letter published on 30 January.

On a conference call with investors, Tesla CEO Elon Musk predicted a 50pc increase in sales this year, even if a worldwide recession was to hit.

Total revenue for Q4 stood at $7.23bn, beating expectations, but earnings per share of $1.93 fell short of Wall Street estimates ($2.10). While it fell short of a full-year profit in 2018, the automaker did complete the year with $3.7bn in cash.

Model 3 demand will be a challenge

Musk underlined demand for the Model 3 car, but noted that cutting costs was required to attract a wider customer base with a lower price. “We have to be relentless about costs in order to make affordable cars and not go bankrupt.” Tesla recently announced it would be cutting 7pc of its workforce in an effort to ensure the Model 3 could sell at an affordable price point.

According to the company, Q4 saw 63,359 Model 3 vehicles delivered to US customers. Tesla said the vehicle is now fully certified for sale in the European and Chinese markets.

Despite touted demand for the Model 3, Musk also warned about logistics challenges and the pitfalls of current US-Chinese relations. He added that the firm was trying to ship vehicles as quickly as it could. “We don’t know what’s going to happen with the trade negotiations so we have to get those cars to China as fast as possible.”

Alongside the Model 3, Tesla said it delivered 27,607 Model S and Model X vehicles to customers in the fourth quarter.

Chinese facility is a crucial puzzle piece

The company opened its Chinese Gigafactory earlier in January and said that lowering the price of the Model 3 largely depended on how quickly the Shanghai facility gets up and running.

Musk also announced that Tesla CFO Deepak Ahuja would be leaving the company in a “few” months. Ahuja spoke with confidence about the future of the firm once he does depart. “There is no good time to make this change. It’s a new chapter, a new year. Tesla has had two great quarters of profitability [and] cash flow – it’s on a really solid foundation.”

Musk added that the company is “optimistic about being profitable in the first quarter, not by a lot, and for all quarters going forward”.

Tesla vehicle. Image: boggy22/Depositphotos 

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects