There was one looming question on everyone's minds headed into Tesla's (NASDAQ:TSLA) third-quarter earnings release on Wednesday: Would the electric-car maker report a profit?

Not only did the electric-car company report a meaningful profit, it also racked up $881 million in free cash flow and reaffirmed its expectation for more profits and positive cash flow in Q4. The news bodes well for Tesla's longer-term prospects as Model 3 production increases.

A red Model 3

Model 3. Image source: Tesla.

 

Tesla's third-quarter results: The raw numbers

Metric

Q3 2018

Q3 2017

Change

Vehicle deliveries

83,775

26,135

221%

Revenue

$6.8 billion

$3.0 billion

127%

Earnings per share

$1.75

($3.70)

N/A

Data source: Tesla 2018 third-quarter shareholder letter.

"Q3 2018 was a truly historic quarter for Tesla," the company said in the opening sentence of its third-quarter shareholder letter. It would be difficult for even a Tesla critic to disagree. Not only was the Model 3 the best-selling car in the U.S. measured by revenue, but the company's dwindling cash position also did a 180. Cash and cash equivalents increased by $731 million to $3 billion.

In addition, the company's Model 3-driven 221% year-over-year increase in vehicle deliveries helped revenue soar 127% as Tesla swung from a significant loss per share of $3.70 in the year-ago quarter to earnings per share of $1.75.

Highlights

  • Tesla delivered 56,065 Model 3's during Q3, up more than 200% sequentially.
  • Third-quarter Model 3 deliveries were higher than total Model S or Model X deliveries in any 12-month period in the company's history.
  • Tesla had an operating margin of 6.1%.
  • Tesla's Model 3 gross margin was just over 20% -- up from "slightly positive" in Q2 and above guidance for 15%. 
  • Gross margin for Tesla's overall automotive business was 25.8%, up from 20.6% in the second quarter of 2018.
  • Megawatt-hours of energy storage deployments were up 118% year over year and 18% sequentially.
  • Tesla is on track with its goal to triple energy storage deployments in 2018 compared with 2017.
A woman taking a test drive in a Model S

Model S. Image source: Tesla.

Looking ahead

Tesla's strong guidance suggests its heightened sales levels and newfound profitability are sustainable. Management said it remains on track with its goal to deliver a total 100,000 Model S and X vehicles in 2018. In addition, the company forecast a further increase in Model 3 production and deliveries in Q4 compared with Q3.

Importantly, Tesla expects to remain profitable in Q4, with its cash position forecast to remain "at least flat in spite of our plan to repay $230 million of convertible notes in cash during Q4."

Looking further out, Tesla said it is still working hard to bring the Model 3's starting price to the company's promised $35,000 level, citing its recent introduction of a more affordable, "mid-range" Model 3 for $46,000 as evidence of the company's progress. "Better than expected Model 3 cost reduction is allowing us to bring more affordable options to the market sooner," the company said. In addition, Tesla noted it is still targeting a Model 3 gross margin of 25%.

Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.