Tesla, benefiting from the Chinese market and persistent price cuts, may be on track for its first profitable year.

On October 22, Beijing time, Tesla released its third-quarter 2020 financial report ending September 30. The financial report shows that Tesla has achieved profitability for five consecutive quarters. Tesla CEO Elon Musk expressed his view on the last quarter in the financial report conference with "Q3 was our best quarter in history."

Specifically, in the third quarter, Tesla's revenue increased by 39% year-on-year to US$8.77 billion; GAAP net profit was US$331 million, a year-on-year increase of 131%; operating profit surged by 210% year-on-year to US$809 million; cash and cash equivalents increased by US$5.9 billion to US$14.5 billion; free cash flow reached US$1.4 billion; deliveries reached a record 139,300 vehicles, and the 500,000 annual delivery target was reaffirmed. Given that 318,000 vehicles were delivered in the first three quarters, Tesla will need to deliver over 180,000 electric vehicles in the fourth quarter to achieve its annual target.

Considering the current complex situation of large-scale "money-burning" expansion and the impact of the epidemic, Tesla's performance is already remarkable. After the release of the financial report, Tesla's after-hours stock price rose by more than 3%, although not as high as the previous nearly 10% increase, but based on Tesla's current stock price, this is enough to reflect the capital market's recognition of it. During the quarter, Tesla completed its stock split plan, which will help investors with smaller capital amounts to buy stocks. Tesla's stock price has increased by more than 400% year-to-date, with a total market capitalization of US$393.8 billion.

It is worth noting that Tesla's Q3 vehicle deliveries, revenue, and profits all set new quarterly records. Compared with the first two quarters of this year, the delivery volume in the third quarter was significantly higher. Obviously, with the epidemic under control and the gradual recovery of economic activity, Tesla's sales have improved, and its financial performance has naturally entered a new stage.

In addition, the surge in profits is directly related to the expansion of Tesla's production scale. Tesla's main model, Model 3, has been lowering prices, but the reduction in unit price has not dragged down overall profitability. One important reason is that Tesla is trying to reduce unit costs through scale. Tesla CFO Zachary Kirkhorn said in a conference call that Tesla's manufacturing and operating costs are continuing to decline, and the company's strong performance momentum will continue.

In Musk's words, Tesla's ultimate goal is to produce electric vehicles that ordinary consumers can afford. Data from Tesla shows that about three-quarters of orders last quarter came from new customers, meaning that most new customers are waiting to purchase Tesla's US$35,000 low-configuration Model 3. In other words, Tesla will cover an increasing number of price-sensitive car buyers.

In early October, the post-subsidy price of the domestically produced Model 3 standard range upgrade version was reduced from 270,000 yuan to 249,900 yuan, which is 10,000 yuan lower than the previous price after the PDD subsidy. Last week, there was news on Weibo that "Model 3 will drop to 199,000 yuan." Although Tesla quickly denied the rumor, industry insiders estimate that 200,000 yuan may be Tesla's bottom line, and further price reductions are likely only a matter of time.

Against the backdrop of other markets not fully recovering from the epidemic, the high-yielding Shanghai Gigafactory and the enthusiastic Chinese consumer market have become the backbone force driving Tesla's counter-cyclical rise. According to Data Vision, in the third quarter of this year, the number of Tesla vehicles insured in China was more than 36,000, accounting for about 26% of Tesla's total deliveries for the quarter. Among them, the domestically produced Model 3 has opened a window for Tesla. According to the China Passenger Car Association, in the first half of this year, the sales volume of domestically produced Model 3 has reached 45,754 units, far exceeding the sales volume of imported Model 3 (37,138 units) last year. With the official entry into the 250,000 yuan range this time, the domestically produced Model 3, whose cost-effectiveness has been improved in October, is expected to see another strong surge in terminal sales.

At the same time, the Shanghai Gigafactory has added a third production shift and has reached an annual production capacity of 250,000 vehicles, which can meet the needs of the Chinese market while also supplying products to European consumers. On October 20, Tesla officially announced that China-made Model 3 produced by the Shanghai Gigafactory will be exported to more than ten European countries, including Germany, France, Italy, and Switzerland.

​

Judging from Tesla's current performance, it is highly likely to continue to achieve profitability in the fourth quarter of this year. At that time, Tesla will usher in its first year of full-year profitability, which will largely verify that Tesla's car-making logic is feasible, and will also give other new forces more confidence. As for Tesla's future, Musk remains confident as always, "I have never felt more optimistic about Tesla than I do today."

Compared with the dazzling financial report, Tesla has been in the whirlpool of public opinion in China recently. It was recently learned from official sources that Tesla's confidence guarantee plan officially ended on October 16, 2020, and was completely taken offline. This means that users who order Tesla models from that date onwards will no longer enjoy the seven-day no-reason return service after purchasing a car. Previously, a series of price reduction waves have touched the sensitive areas of consumers, and now with the retreat cut off, Tesla owners will inevitably make more discordant voices. In addition, Tesla's own products have also exposed many problems. With the increase in the number of vehicles in service entering a new stage, problems with the vehicles themselves and the management of the company are also magnified, which may to some extent lay hidden dangers for Tesla's future development.

To a large extent, the initial intention of introducing Tesla to China was to promote the development of the domestic new energy industry. However, now, Tesla's dazzling achievements have put some pressure on China's new car-making forces, even squeezing them in terms of supply chain systems and vehicle share. But it is certain that for those who are proactive, they can seize opportunities and meet challenges by absorbing advanced technologies to improve themselves; while for those who are lazy to seek innovation, they may be hoping that "foreign friends" will complete the task, which is obviously not good for the new energy industry.