Tesla Used-Vehicle Sales Rise Amid Model 3 Production Issues

While Tesla Motors Inc. has been battling bottle-neck production issues for its Model 3 vehicle, used Model X and S vehicle purchases more than doubled from the prior quarter, according to the company’s third-quarter earnings yesterday.

Tesla delivered 25,915 Model S and Model X vehicles and 222 Model 3 vehicles in the quarter, for a total of 26,137 deliveries. Combined Model S and X deliveries in the third quarter grew year-over-year by 4.5%.

Service and other revenue increased predominantly due to strong growth in used-car sales, according to the earnings report, without providing additional clarification. “We expect service and other revenue to increase further in the fourth quarter,” the report stated.

Customer deposits grew 14% sequentially in 3Q, driven primarily by higher demand for Model S, X, and 3. Tesla did not break out the number of overall deposits or the specific revenue, but global retail sales for 3Q were approximately $2 million while leases were approximately $286,000 — a year-over-year growth of 8.3% and 23.7%, respectively.

Meanwhile, 21% of third-quarter deliveries were subject to lease accounting, which is roughly consistent with the prior quarter. Initially, for Model 3, Tesla will not be offering a lease financing option, which will result in upfront revenue recognition of the vehicle and improved cash flows from Model 3 deliveries.

Additionally, Tesla provided an update on its autonomous capabilities within Autopilot. The “foundation of the Tesla vision neural net is right,” according to the earnings report. “… We expect a rapid rollout of additional functionality over the next several months and are progressing rapidly towards our goal of a coast-to-coast drive with no one touching the controls.”

“I feel quite confident that we can achieve human-level autonomy with the current computing hardware,” Elon Musk, chief executive of Tesla, said on the earnings call, adding the caveat that the level of reliability and other regulatory requirements are factors to consider.

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  1. […] At the same time, production issues with the cheaper Model 3 led the company to focus on its strong growth in used sales, which is a strategy Chief Executive Elon Musk said would be implemented at the […]