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Tesla's good third-quarter earnings don't excuse its challenging future

TEsla charging station
Photo: Smith Collection/Gado/Contributor/Getty Images

Tesla had a good night, and now the question is whether it's a new day for the pioneering but volatile automaker that kicked off the push to move electric vehicles toward the mainstream.

Driving the news: Tesla surprised Wall Street with a $143 million third-quarter profit on Wednesday evening, and announced plans to ramp up vehicle production at its China factory sooner than expected.

  • The results sent the stock surging by over 20% in after-market trading. It was still up by 18% when the market opened Thursday.
  • The company also announced that deliveries of its Model Y SUV crossover will launch next summer, ahead of schedule.

What they're saying, via AP: Wedbush Securities analyst Daniel Ives called it a "jaw dropper," adding, "The Street wanted profitability and Tesla delivered in big fashion."

Why it matters: Tesla's recent cash-losing streak is over, though the company turned a bigger profit in 2018's Q3 with $311 million, and the company talked up its cost-controlling efforts.

  • However, Tesla also saw its first annual revenue drop since 2012, as it sells more of its lower-priced Model 3 vehicles and fewer higher-priced models.

But, but, but: Tesla has yet to prove it can be consistently profitable, and it's facing rising competition as legacy automakers and startups alike roll out new electric models.

  • And the company has already reached the ceiling for consumers to use the full $7,500 tax credit, which is limited to 200,000 vehicles per manufacturer, and phases down from there. That could give a price edge to competitors that can still take advantage of the incentive.
  • "We think questions remain regarding the sustainability of these results, particularly as EV competition ramps up and its tax credit goes away," CFRA analyst Garrett Nelson tells MarketWatch.