Tesla (NASDAQ: TSLA) stocks soared nearly 20% on Thursday after the company showed its first sign of profitability in three quarters. The reported profits proved analysts' predictions wrong, but the analysts themselves don't see this as such a fantastic sign for the company moving forward.
Despite the fact that this isn't what we were expecting, it's clear how this happened. A part of the equation is deferred revenue from the previous quarter, but a much bigger factor is Tesla's efforts to cut both costs and spending. In order to achieve a positive bottom line, they spent less money than they brought in. However, overall the company fell short of revenue estimates and showed the first year-over-year decline in seven years. The stock closed at $254.68 on Wednesday, a drop of roughly 24% since last year.
On Thursday, the company released a Q3 Investor Update, letting stakeholders know that progress on their factory in Shanghai is ahead of schedule, and that they have moved up their predicted date for release of the new Model Y. They previously planned the release of the new electric sedan for fall 2020 but now they expect to be ready for release by summer 2020. The factory, which is currently in a trial production phase, plans to reach volume production "in a few months".
Meanwhile, Elon Musk told investors that he predicts the upcoming Model Y will outsell their other models combined. He said that at this point, the company is only continuing to make the Model S and Model X for "sentimental reasons" and that they're sold at such a low volume that it hardly affects Tesla's future. The companies CFO Zach Kirkhorn clarified that the production of the Models S and X will be increasing to meet increasing demand.
Despite all of this seemingly positive news, analysts are not very optimistic about the car company's future going forward. Some, such as long time Tesla bear Ed McCabe, see the company as "structurally unprofitable", citing decreases in automotive revenue, total revenue, research and development, operating income, and free cash flow and an increase of 12% for total debt. McCabe sees this quarter's outcomes as a repetition of last year's third quarter spike, meaning it could result in a "disastrous" first half of 2020 similar to the "disastrous" first half of 2019. Many analysts "remain concerned [about] 2020 momentum / profitability".
Tesla seems to want to maintain this pattern of making a profit every three months in order to defer its debts, but the upcoming release of the Model Y could result in over spending by the company, according to Business Insider's Matthew DeBord. Moving forward they have two choices: either they can return to their old ways of taking in capital and "incinerating it", or they can continue to cut spending on things like research. Either they can be a stingy car company, or they can be a volatile tech/energy utopia. While it may not be as exciting, the first option does seem to be the safer choice and the one the company is picking.