Tesla Q3 2019: Profits and Progress to Autonomy

Tesla beat Wall Street’s expectations in 3Q 2019, and by some margin. After losing over US$1 billion during 1H 2019, it registered a profit of US$143 million in the third quarter. And while it will still end up in the red for the full year, Tesla’s increasing volumes is good news for the still-developing ecosystem for future autonomous vehicles.

Tesla is getting close to its annual delivery target of 360,000-400,000 vehicles. In Q3, its deliveries stood at 97,000, a significant improvement over the 63,000 with which it began the year. To meet its target, it will have to sell 105,000 cars in 4Q 2019. Taking a long-term view, it is important for Tesla to keep increasing volumes. More vehicles on the road mean more data for it to fine-tune its development of autonomous vehicles. The Model Y, an electric SUV which Elon Musk believes will outsell all of its other models, will only add more Teslas on roads in 2020.

Tesla is confident that its cars will be capable of carrying out most driving tasks under supervision by the end of this year. Subject to regulatory approvals, the company is also confident of offering cars with Level 4 autonomy within 2020. While there is debate over whether the company is overpromising, Counterpoint believes that even if the launch is delayed by a couple of years, Tesla will remain ahead of big automakers in the development of autonomous vehicles.

Exhibit 1: Tesla Cars Production and Deliveries in 2019

The company’s acquisitions during 3Q 2019 will also improve its machine learning algorithms. One of the companies Tesla acquired during the quarter is DeepScale, a 12 employee, four-year-old startup. Its Carver21 is an AI software for autonomous vehicles using deep neural networks. Carver21 only works with front cameras rather than LiDAR. Tesla is not a believer in LiDAR, reckoning that cameras and radar are enough and also considerably cheaper than LiDAR. This makes DeepScale’s technology a good fit.

In 3Q 2019, Tesla also acquired Hibar Systems, a high-speed battery manufacturing company, which will aid Tesla to develop in-house battery technology and further ease delivery bottlenecks. Batteries remain the most important component of electric vehicles. Tesla’s efforts to gain expertise in battery technology and manufacturing is positive for the future when it will need a mix of in-house technologies and partners for battery supply.

Envisioning a future where the human is freed of driving tasks, Tesla continues to improve its in-vehicle experience. The latest software update, 10.0, adds Spotify Premium, Netflix, YouTube, and Hulu. There’s also ‘Caraoke’, a feature that lets drivers and passengers sing karaoke on a road trip.

To sum up, Counterpoint’s believes that the big positive for Tesla is its ever-increasing volumes. Its goal of creating fully autonomous vehicles will be made all the more possible if it has a large network of cars actively generating training data that will be used to train autonomous driving algorithms.

As it has already shown in 3Q 2019, Tesla can manage to improve operational efficiencies and trim costs when required. Greater volumes will also help bring down product development costs. With the head-start it has now, it is difficult to argue against Tesla leading the race in autonomous vehicle development.