Tesla's Q3 sales are the "best ever" as Musk promised. What now?
Benoit Tessier/Reuters
Main page Technologies, Tesla

The company's vehicle sales more than doubled this quarter thanks to Musk's plan to "rally the troops" as Tesla approaches the next fundraising round to finance its costly ambitious projects.

Tesla Motors (NASDAQ: Tesla Motors [TSLA]) has managed to optimize its sales and production levels and show the "best quarter ever", as Elon Musk previously promised. Just about 4 weeks ago, Musk sent out a company-wide email urging the employees to produce as many cars as possible in Q3 in order to impress investors and "throw a pie in the face of all the naysayers on Wall Street who keep insisting that Tesla will always be a money-loser!". And it seems like his far-reaching plan has really worked out.

Yesterday, Tesla has reported to produce and deliver to customers 24,500 vehicles in Q3, which is the highest-ever sales result of the company and a 111% annual increase from the same period of 2015. The number included 15,800 Model S sedan vehicles and 8,700 Model X SUVs. Tesla said that the count didn't include the 5,500 vehicles that are still in transit.

“Our Q3 delivery count should be viewed as slightly conservative, as we only count a car as delivered if it is transferred to the customer and all paperwork is correct,” Tesla said.

This results is a 70% increase from the last quarter's delivery result of 14,402. On top of that, Tesla's production rate has also jumped whopping 37% since the last quarter, reports the Venture Beat. Overall, it looks like Tesla has managed to do what not many people believed was possible. But at what costs?

In the last 4 to 5 weeks the company has made a huge sales and production push. However, some customers have reported receiving unusual discounts on freshly-produced Tesla models with a discount deadline on the last day of Q3 (last Friday). In a response to this, Musk has sent out an email on September 28 reminding the employees to adhere to the company policy:

"It is fine to have a discount on cars that have been floor models, were used in test drives or were damaged before delivery. All we are doing there is assigning an accurate price to the vehicle. However, there can never -- and I mean never -- be a discount on a new car coming out of the factory in pristine condition, where there is no underlying rationale. This is why I always pay full price when I buy a car and the same applies to my family, friends, and celebrities, no matter how famous or influential."

According to Bloomberg, this email followed the note to investors from an analyst Brad Erickson saying that Tesla was using "aggressive discounting" tactics to lift the sales.

The positive sales results and cash flow look even more impressive considering Tesla's long history of failing to meet the promised sales targets, what was a serious threat to justify the company's high investment needs in the eyes of the investors. After a 14% year-to-date drop last month on the news of the controversial merger between Tesla and the debt-driven SolarCity (NASDAQ: SCTY), TSLA stock still hasn't reached stability. As of writing, TSLA is about to open with +4.20% pre-market at $212.60 later today.

Musk's initiative to boost the production and sales performance this quarter at all costs allowed the company to "artificially" lift the Q3 results, say the experts. But the future investors will need to be sure that Tesla can consistently produce vehicles at such high rates and quality, yet the "artificially" elevated Q3 sales results might not be the indicator of the long term success.

In addition to that, the fact that the email Elon Musk sent to Tesla's employees about one month ago went public, somehow makes the "best ever" quarter of Tesla look a little less impressive.

"We are on the razor's edge of achieving a good Q3, but it requires building and delivering every car we possibly can, while simultaneously trimming any cost that isn't critical, at least for the next 4.5 weeks. Right now, we are tracking to be a few percentage points negative on cash flow and GAAP profitability, but this is a small number, so I'm confident that we can rally hard and push the results into positive territory," Musk wrote in an email.

Obviously, this is unlikely to become a sustainable practice over long term. Again, the reason behind the entire Musk's "rallying troops" project was to push the company to unprecedented sales and production levels before the upcoming fundraising round that Tesla is heavily dependent upon. The company has embarked upon several cash-intensive projects such as building the $5 billion Gigafactory, the largest battery production plant in the world, living up to the delivery promises of over 370,000 pre-ordered Tesla Model 3 next year as well as finalizing the expensive merge with SolarCity.

Yet Musk doesn't stop there. He said that Tesla will be producing about 500,000 cars annually by the end of 2018, which is approximately 5 times higher than Tesla's current production level. This means that Tesla is about to face heavy production pressures starting already next year, when Model 3 will be expected to reach its first customers.

Therefore, even though Tesla's Q3 results are, indeed, a big success for the company, it is still a question whether Musk will be able to boost his company to perform at this rate in the future.

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