Tesla posts back-to-back profits for the first time

Tesla made a $139 million profit in the fourth quarter of 2018, the first time the electric automaker has ever posted back-to-back profitable quarters in its 15-year history. It was also Tesla’s fourth profitable quarter ever, according to an investor letter published on Wednesday. Tesla generated $7.2 billion in revenue in the quarter, a record for the company.

Total revenue for 2018 was $21.4 billion — another record for the company — though Tesla still posted a $1 billion loss across the year. Tesla remains short of CEO Elon Musk’s ultimate goal of generating a full-year profit, but it has been clawing back its losses and finished the year with $3.7 billion in cash. Last year, the company lost $2 billion. Musk and CFO Deepak Ahuja wrote in the letter that 2018 was the “most pivotal year in Tesla’s history.”

On a call with analysts Wednesday night, Musk announced Ahuja will be leaving the company in a “few” months. “There is no good time to make this change,” Ahuja said on the call. “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.” The company recently lost its chief accounting officer and its head of global finance. Zach Kirkhorn, vice president of finance at Tesla, will take over Ahuja’s role.

Tesla said earlier this month that it made a total of around 253,000 cars in 2018. It delivered about 245,000 of those; just under 140,000 of those were Model 3s. The company delivered 63,359 Model 3s in the fourth quarter of 2018 alone. (Only 1,550 had been delivered at the end of 2017.) Tesla only reached half of the original 500,000-cars-sold goal that Musk once set for 2018, but the company more than doubled its 2017 output.

After two years and billions of dollars to get the Model 3 into production, plus months of “production hell” followed by months of “delivery logistics hell,” Tesla is starting to operate at the kind of scale Musk has always promised. The company also said on Wednesday that it hopes to deliver 360,000 to 400,000 cars total in 2019, an increase of 45 to 65 percent over 2018.

Another goal Musk set for Tesla last year was to be profitable from the third quarter of 2018 onward. To do that, though, the company needs to find a way to build on the Model 3’s wave of popularity.

Some Wall Street analysts believe demand for the higher-priced variants of the Model 3 is cooling in the US. Both Morgan Stanley and Deutsche Bank cautioned investors on Wednesday that Tesla might face a “demand air pocket,” while Goldman Sachs said “sustainable demand is the real question” moving forward. That’s in part because Tesla’s cars no longer qualify for the full $7,500 federal tax credit for electric vehicles. It’s also because the company has not begun production of the most affordable version of the Model 3, which is supposed to start at $35,000.

If Tesla puts the affordable Model 3 into production, that may create more demand, but it won’t be easy to make that version of the car and turn a profit. In fact, Musk told investors during a call in November that Tesla has “more work to do in order to make a $35,000 car and have it” be profitable. Tesla was “less than six months” away from making that happen, Musk said at the time.

Tesla could also keep increasing demand for the Model 3 by entering new markets, a project the company is already embarking on. Tesla currently exports the car to China, the biggest market for electric cars in the world.

Prices there have already shifted a few times as a result of the trade war, and Morgan Stanley analyst Adam Jonas said in a note on Wednesday that China’s tariff policy will determine how 2019 sales go in China. Tesla wants to sidestep tariffs by building Model 3s at a new Gigafactory outside of Shanghai, but the company only just broke ground earlier this month and likely won’t start production until the end of this year at the earliest. “Longer term, we continue to maintain very low expectations of Tesla’s ability to participate in the Chinese market,” Jonas wrote on Wednesday.

The Model 3 also recently received approval in Europe, another big market for EVs, but deliveries haven’t started yet. On the investor call, Musk said Tesla is currently dedicating basically its entire production efforts to fulfilling orders for these markets right now.

Tesla plans to unveil a similarly affordable Model Y crossover SUV in March, but it won’t go into volume production until 2020, Musk said on the call. Until then, the company appears hyper-focused on the Model 3. Tesla recently eliminated the cheapest versions of the Model S and X, simplifying its lineup while increasing the base price of those cars by more than $10,000. Tesla also reportedly “slashed” Model S and X staff during the company’s most recent round of layoffs.

The release of Tesla’s final financial results caps what Musk called “the most challenging [year] in Tesla’s history,” a reference to how the CEO “bet the company” on the Model 3 and came within “single-digit weeks” of collapse.

2018 will also be remembered as the year that Elon Musk impetuously announced a plan to take the company private using money from Saudi Arabia’s sovereign wealth fund — a plan that collapsed within weeks once it became clear that Tesla and Saudi Arabia had only held exploratory talks about the idea. The bungled plan also ultimately led to a lawsuit from the Securities and Exchange Commission.

In the end, Musk settled with the SEC and agreed to step down as chairman of Tesla. Two new directors were added to the company’s board (Oracle founder and self-described “close friend” Larry Ellison and former Kellogg executive Kathleen Wilson-Thompson), and both Musk and Tesla paid a $20 million fine.

Update January 30th, 7:14PM ET: Added details from Tesla’s investor call.