The young electric upstart Tesla Motors has shown a clean pair of heels to its combustion-engined centenarian rival Ford.
Elon Musk’s 13-year-old battery powered-car company has posted an unexpected profit and said it expects to get through the rest of the year without raising cash.
Ford, meanwhile, founded in 1903, posted third-quarter profit that fell by more than half, buffeted by a slowing US market and higher spending for its premier pickup truck model.
Tesla’s profit, its first in eight quarters, boosted its shares as much as 5.3 per cent in early trading on Thursday after they had slumped 16 per cent this year.
Amid the good news was the company’s US$139 million gain from the sale of zero-emission-vehicle (ZEV) credits to other car-makers who need them to meet California’s clean air rules. In the previous quarter, Tesla said they “recognised an insignificant amount of ZEV credit revenue” and did not provide a number.
The credits of $139m were “well above” the $30m estimated by UBS, said Colin Langan of the Swiss bank, one of the few analysts to predict a profit. Still, Tesla’s “cash burn likely returns” in the fourth quarter and beyond with an expected spike in capital expenditure, he said.
Ben Kallo, a Robert W Baird analyst, said: “A capital raise may be done opportunistically to create a financial buffer.”
Tesla’s positive free cash flow of $176m in the quarter is helped by the fact that the company’s capital expenditures budget is heavily loaded to the fourth quarter. Tesla spent $759m in the first nine months of the year and plans to spend more than $1 billion in the fourth quarter.
Contrast
Tesla said it will deliver just over 25,000 cars in the fourth quarter, after a final third quarter delivery count of 24,821. That will bring Tesla to 79,033 vehicles for the year. Tesla says it will make 500,000 cars a year in 2018.
In stark contrast to Tesla’s good fortune, Ford has had a bit of a downturn.
Net income dropped to $957m from $2.19bn a year earlier, the old-timer said.
The plunge in profit came in a rare quarter when Ford had negative cash flow of $2bn. It is spending big on its aluminium-bodied Super Duty pickup and has ambitions to join the hip young things and transform itself into a mobility company that can take on tech interlopers such as Uber and Google. The chief executive Mark Fields has said profit would fall this year and in 2018, and investors pushed Ford shares down 16 per cent this year.
“We’re going to stay real focused on putting out a great product, running a responsible business and growing in emerging mobility areas,” Mr Fields said.
The earnings decline came as the car maker trimmed production amid slower growth in the US market. There were also glitches in the manufacturing roll out of the Ford new Super Duty, a highly profitable model.
“We have had some supplier issues,” said the chief financial officer Bob Shanks, without specifying the problems. “There’s never a perfect launch. These are very complicated vehicles with thousands of parts coming together.”
Ford’s fading fortunes also contrast with General Motors, which reported record third-quarter net income of $2.8bn on Tuesday, and Fiat Chrysler Automobiles, which had a 29 per cent increase in earnings in the quarter and raised its profit forecast for the year to at least $6.3bn.
Veteran
Ford’s US light-vehicle sales fell 6.7 per cent in the quarter to 632,123 from 677,163 a year earlier, according to researcher Autodata. To reduce rising inventory, the the car maker temporarily shut five plants this month. In July, Ford said it would reduce North American factory output by 10 per cent in the third quarter to 710,000 cars and trucks. Automotive revenue fell to $33.3bn.
But the veteran motor maker is not likely to expire just yet, analysts say.
“Over the next few years, Ford won’t report horrible numbers, but it’s not attractive for investors,” said David Whiston, an analyst for Morningstar in Chicago. “The move to aluminium on the F-150 truck is great from a technology and fuel economy point of view, but it seems like they’re not getting the profitability [Wall] Street had hoped for.”
And that is sure to give teenage Tesla something to crow about.
* Bloomberg
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