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Tesla Moves to Build the Model Y After a Gangbusters 2018

Tesla closed out an action-packed 2018 with a profitable fourth quarter, coming out $139.48 million in the black, the electric car company announced today. And while that fell short of Wall Street expectations and left Tesla down nearly a billion dollars on the year, it’s a sign of momentum. This is the first time Elon Musk’s automaker has posted profits in consecutive quarters since going public in 2010.

To keep things going, Tesla is focusing its efforts on a few key areas, Musk said on an earnings call: reining in costs, improving its service operations, getting Model 3 sedans to customers in Europe and China, and preparing for production of the Model Y, the as-yet-unseen midsize SUV that will follow the Model 3.

Those two profitable quarters are thanks in large part to Tesla’s ability to ramp up production of the Model 3 to a rate of more than 5,000 cars a week. For 2019, Musk said, he hopes to keep that up, and increase it to 7,000 cars a week or more. That effort will get a boost when the factory Tesla has started building in Shanghai is up and running, but for now the cars heading to China and Europe are being built in California. Tesla’s working to improve the logistics of those delivery operations, Musk said, in an effort to keep its costs down. And that’s key to converting fans into owners, especially since Tesla has lost access to the $7,500 tax credit the US federal government offers for electric cars.

“The demand for Model 3 is insanely high,” Musk said. “The inhibitor is affordability. It’s just that people literally don’t have the money to buy the car.” Indeed, the cheapest version of the car now available costs more than $40,000.

True to braggadocious form, Musk predicted that demand for the Model Y will outpace that for the 3 by 50 or even 100 percent. That’s not totally unreasonable—SUVs and crossovers are so much more popular than sedans that Ford and GM are done building passenger cars for American buyers.

Tesla is now starting to put together the tooling that will allow for production of the Model Y, Musk said, which he promised will go more smoothly than that of the Model 3 (and the Model X before it—he called the luxury SUV “the Fabergé egg of cars,” beautiful but a PITA to build). The midsize SUV will share more than three quarters of its parts with the Model 3, and Tesla will likely build it at its Gigafactory battery plant outside Reno. “Batteries and powertrains will come out and go straight into the vehicle,” Musk said. The car should be in volume production by the end of 2020.

Making that process as smooth as Musk makes it sound would be a major boon for Tesla, as it continues its transition from niche luxury to mass-market automaker—especially now that battery-powered competition is ramping up. “Tesla's product lineup is starting to get stale, and now, thanks to the elimination of the federal tax credit, buying one has never been more expensive. While there's still a cool factor to owning a Tesla, it may not be enough to convince buyers to choose one over brand new models from Audi, Porsche, and Jaguar,” says Jessica Caldwell, an auto industry analyst with Edmunds.

In other assorted news, Musk said that the pickup truck he first mentioned in 2013 might be ready for its public debut this summer. (“It’ll be something quite unique. Not like anything else.”) He said he considers his cars to be fully self-driving when they’re on the highway, a dubious claim for a system that still demands constant human supervision. And he waited until the very end of the hour-long call, after the end of the question and answer session, to announce the (second) retirement of CFO Deepak Ahuja. Ahuja will be replaced in a few months by VP of finance Zach Kirkhorn, who’s been with Tesla for nine years.

As ever, the challenges ahead of Tesla are formidable—staying alive in the auto industry is at most a hair easier than breaking into it. But even with predictions of a recession and slowing auto sales in 2019, Musk spoke with hope. “I’m optimistic about being profitable in Q1,” he said. “Not by a lot.”

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