On the surface, Tesla (NASDAQ:TSLA) had a great third quarter. The company built a record number of vehicles. It also achieved a record number of deliveries, although it fell short of its internal goal of delivering 100,000 vehicles. Finally, Tesla continued to rebuild its order backlog during the period, as orders exceeded deliveries.

However, some aspects of Tesla's performance were far less rosy. Demand for the Model S sedan and the Model X crossover -- the electric vehicle pioneer's most lucrative models -- continues to drop off. Furthermore, Tesla reduced the prices of most of its models (again) in July. The resulting decline in its average selling price is making it hard for Tesla to turn a profit, despite its record sales.

Tesla's quarter by the numbers

On Wednesday, Tesla updated investors on its third-quarter production and deliveries. The company built a record 96,155 vehicles last quarter, consisting of 79,837 Model 3s and 16,318 of the pricier Model S and Model X. For comparison, it produced 80,142 vehicles in the third quarter of 2018. The Model 3 accounted for only 53,239 units of its output in the year-ago period, with combined production of the Model S and Model X standing at a far more substantial 26,903 units.

Delivery trends roughly tracked these changes in production. Tesla delivered 56,065 Model 3s in the third quarter of 2018, along with 27,710 Model S and Model X vehicles. The company hasn't finalized its numbers for Q3 2019, but it estimates 79,600 deliveries for the Model 3 and 17,400 for the Model S and Model X combined. That would put its delivery total for the quarter at a record 97,000 vehicles.

A silver Model 3 parked on a road, witha  green field in the background

Tesla produced and delivered nearly 80,000 Model 3 sedans last quarter: a new record. Image source: Tesla.

There were some reasons for optimism

On the bright side, Tesla delivered nearly 16% more vehicles last quarter than it did in the prior-year period. Additionally, Tesla's delivery total increased nearly 2% sequentially.

This sequential increase in deliveries was particularly positive news because the company had to overcome another decline in the U.S. federal tax credit for Tesla purchases that went into effect on July 1. Additionally, the launch of the Model 3 outside of North America and initial availability of the $35,000 base model had helped juice deliveries in the second quarter. As a result, there had been a risk that Tesla would suffer another sequential decline in deliveries (and production), as occurred in Q1 2019.

In another good sign for the company, Tesla booked a record number of net orders last quarter and increased its order backlog during the period. The company doesn't officially report orders, but CEO Elon Musk said in late September that Tesla was tracking toward 110,000 orders for the quarter. Investors should take this figure with a grain of salt, though, given Musk's penchant for hyperbole.

Tesla is stuck in a quagmire -- at least for now

Notwithstanding these positive developments, Tesla's production and deliveries update was disappointing overall. Most importantly, it reinforced the lack of a clear path to profitability based on Tesla's current business.

Prior to the update, analysts were estimating (on average) that Tesla would swing to a loss of $0.41 per share for the third quarter, excluding stock-based compensation. For comparison, it posted earnings per share of $2.90 in Q3 2018 but a loss of $1.12 per share in Q2 2019 on that basis.

Considering that Tesla delivered only slightly more vehicles last quarter than it did a quarter earlier -- with Model S and Model X deliveries down modestly on a sequential basis -- it seems unlikely that the company improved upon its Q2 earnings results dramatically. While Tesla has been reducing its production costs, its July price cuts probably offset any savings it achieved over the past three months.

A silver Model S driving on a road at dawn

Demand for the pricey Model S and Model X has slowed this year. Image source: Tesla.

Thus, Tesla will probably report another sizable loss for the third quarter, even excluding stock-based compensation, which is a massive expense in itself. Normal-course cost reductions may enable Tesla to reduce its losses over time, but they don't represent a path to sustainable profitability.

Everything is riding on China and the Model Y

Instead, Tesla is counting on catalysts such as the opening of its first factory in China (expected later this month) and the introduction of the Model Y crossover in late 2020 to begin churning out substantial and sustainable profits.

To be fair, both of these developments could be hugely positive for Tesla's business. By building the Model 3 in China, Tesla will be able to avoid hefty import tariffs and offer more competitive pricing in the world's largest electric vehicle market. Meanwhile, the Model Y is likely to be even more popular (and more profitable) than the Model 3 in the long run, as consumer demand has shifted dramatically from sedans to crossovers.

That said, the Chinese economy has hit a rough patch, at least partly due to an escalating trade war with the U.S. Auto sales have peaked in many other key markets, too. Thus, the macroeconomic background isn't favorable for Tesla to achieve the massive earnings growth it would need to justify its sky-high valuation.