How Tesla Increased Its Margins on Lower Sales

The automobile business is a very high fixed-cost business, which means that much of an auto manufacturer's costs come from its plant and equipment, which have to be maintained and updated. There are also high-wage technical personnel, who are often under union contracts. Therefore, when an auto company has high sales, much of that excess revenue falls straight to the bottom line. Yet when sales decrease, the opposite is true, and margins compress.

Tesla (NASDAQ: TSLA), however, managed to defy this automotive law of nature last quarter. In its recently reported third-quarter results, Tesla somehow managed to increase margins significantly, even as automotive and total revenue decreased. It's one of many mini-miracles the company has pulled off since Tesla, in 2003, became the first new U.S. automaker since 1956. Here's how the company did it.

Tesla shocked investors with surprising profitability. Image source: Getty Images.

Source Fool.com