October 24, 2019 / 3:38 AM / in 4 months

Breakingviews - Elon Musk cuts his way to easier path

FILE PHOTO: SpaceX owner and Tesla CEO Elon Musk speaks during a conversation with legendary game designer Todd Howard (not pictured) at the E3 gaming convention in Los Angeles, California, U.S., June 13, 2019. REUTERS/Mike Blake/File Photo

NEW YORK (Reuters Breakingviews) - Elon Musk is finally giving Tesla shareholders some good financial news. Third-quarter earnings unveiled after the markets closed on Wednesday brought an unexpected, if small, profit of $143 million at the electric-car maker. Unlike this time last year, fast-growing sales weren’t the cause: cost discipline was. That’s a welcome change.

General and sales costs both fell, while there were no restructuring costs at all, compared with $117 million in the second quarter. Throw in an all-round improvement at the troubled SolarCity franchise, and Tesla had some $450 million extra to play with. Musk has been promising to cut outlays for some time, so it’s encouraging to see it kick in at last.

It was needed, too. Tesla may have sold a record number of cars last quarter, but the feat did not translate into a booming top line. Revenue actually fell slightly from the three months to the end of June, and was down 12% on last year’s bumper third quarter. That’s because the company handed over more of its cheaper Model 3s than ever before.

The key to Tesla’s success now is for Musk to find a way to reinvigorate sales growth that has slowed to low single digits while also continuing to keep costs under control. In addition he has to ensure that lower expenses don’t compromise the safety and quality of the cars, issues which have plagued the company for a couple of years. Keeping relatively quiet on social media, a newly learned habit for Musk, would be a good one to stick at, too.

Traders dabbling in after-hours markets seem already to have made some bets that Musk is finally getting on track, with Tesla’s stock up some 20% from the company’s closing market capitalization just shy of $46 billion. Optimists have been disappointed plenty of times before; only he can prove them right.


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