Tesla Turns a Profit—and Builds a Chinese Factory Very Fast

Whether you’re a bullish Tesla superfan or an intense skeptic, there’s one thing on which you can agree: The electric carmaker, and its irreverent and impish CEO, are never, ever boring. Tesla reported its quarterly earnings Wednesday, showing the company regaining profitability (albeit by a slim margin). Even more impressive: Tesla said it had constructed its Shanghai Gigafactory—which it says will ultimately crank out 150,000 cars a year—in 168 working days.

Share prices shot up 20 percent late Wednesday on the news of Tesla’s $143 million in quarterly net income, the first time the company has been in the black since the end of last year. It attributed the jump to cost reductions, which Chief Financial Officer Zach Kirkhorn said were now “ingrained in the culture of the team.”

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But the quarter marked the company’s first year-over-year revenue decline since 2012. The company attributes the 8 percent dip in part to its leasing program, which debuted this spring. CEO Elon Musk said the company was still on track to sell 360,000 vehicles by the end of the year, which would see Tesla grind out a record 105,000 cars in 2019’s last three months.

Serious stuff is happening in Shanghai, the site of Tesla’s second manufacturing facility, company executives said on a phone call with investors. The carmaker’s “low cost” Model 3 vehicles are already moving through assembly lines on a trial basis, and Musk heralded the “massive” stamping machines and in-operation paint shop. He also confirmed media reports that a second building is under construction in the Shanghai complex to handle battery and module production. Tesla hopes to produce 1,000 Model 3s a week from the factory by the end of the year. It will also produce Model Ys, its affordable crossover model, at the plant.

In its earning report, Tesla said it is working to finalize its local manufacturing license and to meet “other governmental requirements” before ramping up production in Shanghai.

That’s good news for Tesla, because China is vital to the carmaker’s future. Though the country’s economy has been buffeted by a trade war with the US, it still has among the most electric-vehicle-friendly regulations on the globe. Chinese car buyers shelled out for 1 million electric vehicles in 2018, and should buy 2 million next year, according to a report from Bloomberg New Energy Finance. Nearly 70 percent of China’s cars could be electric by 2040.

But China has, until this year, required foreign carmakers to link up with domestic ones to manufacture in the country, and avoid a 25 percent import duty. Tesla will be the first foreign company to take advantage of China’s new rule, which allows foreigners to produce vehicles in the country without a Chinese partner. The company believes China will be its strongest Model 3 market. Last month, one analyst said he suspected that Tesla sales in China are spiking up.

Musk also used Wednesday’s call to update investors on other projects. The Model Y, currently under production in the company’s Fremont factory, is ahead of schedule, he said, and drivers should be able to get their hands on one starting summer 2020. He hyped what he’s now calling the “Cyber Truck,” Tesla’s electric pickup, calling it “our best product ever.” (The truck is slated for an unveiling event next month.)

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