Tesla reported record Q1 earnings after the market close Wednesday. The takeaway was $TSLA with the foresight of tying up key commodities such as nickel, rare earths and lithium earlier got them ahead of the inflation curve. This made the company able to relentlessly focus on manufacturing. From that gross automotive margin were 30.5%, up from 28.4% over the previous quarter.
Even excluding credit sales, operating profit was a record and much better than Wall Street expected. What excited the market also is Tesla said it expects sales to grow an average of 50% annually.
Tesla is much more than an electric car company these days. Tesla earnings releases and Elon Musk’s conference calls leave much up to conjecture and we have seen violent stock price swings off them.
Tesla Inc NASDAQ: TSLA· Reported Earnings After Close Wednesday
$1.86 Beat $1.59 EPS Forecast AND $13.757 billion Beat $13.66 Billion Forecast in Revenue
Conference call: 5:30 p.m.
Tesla Earnings Highlights
- Operating profit was a record $3.6 billion, compared with expectations of $2.6 billion.
- This equates to a record $3.22 per share from $18.8 billion in total sales, its highest ever. Wall Street was looking for earnings per share of about $2.20 to $2.30 from about $18 billion in sales.
- In the fourth quarter of 2021, Tesla earned $2.54 a share on sales of $17.7 billion.
- Sales of regulatory credits contributed to the surprise. Credit sales came in at $679 million in the first quarter, more than double expectations for about $312 million.
- Even excluding credit sales, operating profit was a record and much better than Wall Street expected.
Tesla Inc. posted stronger-than-expected first quarter earnings Wednesday with profit margins increasing.
Shares were up 5.5% in after-hours trading, at about $1,031 a share. The stock fell about 5% in regular trading Wednesday, while the Nasdaq Composite lost about 1.2%. The S&P 500 was flat.
Tesla management cited inflation pressures in its news release. However, Tesla’s cost per car dropped compared with the fourth quarter. One explanation is that Tesla buys batteries and materials on long-term contracts. That can delay the impact when spot prices are higher.
It is expected that the average price in the first quarter for a basket of metals that go into EV batteries was up more than 70% in the first quarter compared with the fourth.
Another reason costs fell was that about half the cars Tesla shipped in the first quarter included iron-phosphate, or LFP, batteries. Those are lithium-ion batteries without more expensive cobalt or nickel metals that allow for better performance.
Tesla offered guidance. “We remain confident of 50% growth in vehicle production in 2022 versus 2021,” Musk said on the company’s conference call. “I think we have a reasonable shot at a 60% increase over last year.”
Tesla’s Shanghai facility shut at the end of March due to local Covid restrictions. Limited production has begun again, but the situation is still fluid.
“Although limited production (at the Shanghai factory) has recently restarted, we continue to monitor the situation closely,” the company said in a letter to investors.
At 55% volume growth, the mid-point of Musk’s numbers, Tesla would deliver about 1.45 million vehicles in 2022.
Musk also said the company is working on a new vehicle dedicated to robotaxis. Tesla continues to invest heavily in its self-driving software and technology.
- Tesla delivered a record 310,000 vehicles worldwide in the first quarter, up roughly 68 per cent from the same period in 2021. The increase came even as Tesla battled a global shortage of computer chips and other parts like the rest of the global auto industry.
- Tesla delivered 185,000 vehicles in the first quarter of last year.
- Last year the company delivered a record 936,000 vehicles, an 87 per cent increase over 2020 numbers.
- The company said in February that it expects 50 per cent annual growth in sales, meaning it expects about 1.4 million vehicles to be delivered this year.
Tesla has relocated it’s headquarters to Austin, Texas. The company said in its statement that construction of its new factory is progressing as planned and it’s preparing equipment and “fabricating our first pre-production vehicles”.
Tesla announced it would provide insurance to its customers in Texas. This service will monitor their driving in real time and lower their insurance premiums based on safe driving history.
What to look for in Earnings
To be prepared we go into depth in these key 7 areas.
- Grid Batteries
- Commodity Supply Chain Contracts
- Raising Cash
- Autopilot Updates
- Regulatory Credits
- Solar and Powerwall
- New plant and production update
- Charging Network
- Global Chip Shortage
2. Grid Batteries
Gigafactories are facilities that produce batteries for electric vehicles on a large scale. Tesla is currently involved in multiple projects that are pertinent to its growth in the coming years including Gigafactory Texas and Gigafactory Berlin, both of which are expected to start Model Y production soon. The company is also ramping its operations in China, where it recently launched the Model Y Standard Range from Gigafactory Shanghai.
Tesla was early in its plans to manufacture its own batteries, joining with Panasonic to build what it called a Gigafactory in Nevada back in 2015. “The Gigafactory will be the largest footprint building in the world when it is done,” CEO Elon Musk said on the company’s fourth-quarter 2015 earnings conference call.
Tesla Gigafactory Berlin
3. Commodity Supply Chain Contracts
- Tesla signed a deal with U.S. based lithium miner Piedmont Lithium (PLL) to help secure Tesla’s supply of lithium.
- BHP Group ( BHP) disclosed an agreement with Tesla July 22 for nickel. “Demand for nickel in batteries is estimated to grow by over 500 per cent over the next decade, in large part to support the world’s rising demand for electric vehicles,” said BHP Chief Commercial Officer Vandita Pant in the company’s news release. “We are delighted to sign this agreement …and to collaborate with them on ways to make the battery supply chain more sustainable through our shared focus on technology and innovation.”
4. Raising Cash
One thing Tesla does better than most is burn through cash to try to deliver on increasingly aggressive goals. The question is will Tesla take to the public markets and raise even more money while the stock market is still near ATH.
5. Autopilot Updates
With Google amongs other now in this space and Tesla’s past issues with the world’s first known fatality in an autonomous car in May 2017 when a Tesla Model S Autopilot software engaged. There have been a number of deaths since. Analysts will watch Musk on developments on this segment.
Tesla is moving ahead with the rollout of Full Self-Driving subscriptions and levels would likely be discussed in the upcoming Q2 2021 earnings call as well. Expect questions about advances in Tesla’s driver-assistance functions and it’s driver-assistance software as a subscription.
6. Regulatory Credits
Tesla generates sales by selling regulatory credits earned by producing electric vehicles. The company generated $518 million in first-quarter credit sales, which helped Tesla beat earnings estimates. Each earnings report there is a debate about credit sales longevity and quality . Eventually it is expected other auto makers sell their own EVs, cutting off that source of revenue for Tesla.
7. Solar and Powerwall Segment
Tesla’s Solar Roof and Powerwall products are likely to have aided growth for solar and energy storage deployments in the second quarter. Analysts will be watching Solar guidance for their annual solar installations and expected bookings of home rooftop solar panels.
Tesla CEO Elon Musk revealed that demand for the company’s Powerwall is as high as 80,000 units but that Tesla will not be able to produce even half of that this quarter. Musk said Tesla will only be able to make 30,000 to 35,000 of its home batteries in a best case scenario for the period ending in September 2021, blaming the expected shortfall on chip shortages.
The company reported $494 million in energy revenue in the first quarter of 2021, an improvement from $293 million during the first quarter of the pandemic year, but its first-quarter cost of revenue reached $595 million. Tesla does not disclose the breakdown between its solar and energy storage products, or its solar and energy products for homes and larger scale projects like its Megapack in Australia.
South Australia Powerwall
8. New Plant and Production Updates
The big question is when Tesla’s new Germany plant and Austin, Texas facility will start delivering cars. The Austin plant will build Tesla’s Cybertruck. Despite seasonality, unstable supply chain, and the company’s transition to the new Model S and Model X, Tesla recorded its highest ever vehicle production and deliveries last quarter.
In the Q1 press release, Tesla said, “We are currently building Model Y capacity at Gigafactory Berlin and Gigafactory Texas and remain on track to start production and deliveries from each location in 2021. Gigafactory Shanghai will continue to expand further over time. Tesla Semi deliveries will also begin in 2021.”
Consider all the risks and misses with carmakers with the supply chain constraints from Covid and the chip shortage with Tesla production goals. Tesla delivered 201,250 units in the second quarter, which rose from the 90,650 deliveries in the same quarter last year and the 184,800 vehicles delivered in the prior quarter.
Markedly, in the second quarter, the Model 3/Y unit vehicle deliveries of 199,360 more than doubled on a year-over-year basis, while increased 9% sequentially. Over the coming years, management expects to achieve 50% average annual growth in vehicle deliveries.
There is the issue of Bitcoin. Tesla recognized a small gain on its Bitcoin holdings in the first quarter, but the cryptocurrency’s prices have fallen by roughly half since their April peak. (Much to do with Musk saying TSLA will hold off accepting bitcoin until it becomes less carbon heavy in mining it.) That means there is a chance of a loss here. Don’t expect Tesla to sell out of its Bitcoin position. Musk continues to indicate his company will transact in the cryptocurrency when Bitcoin mining uses more sustainable power.
10. Charging Network
Tesla’s is set to make much money from its charging network. Elon Musk tweeted this week Tesla would open its charging network to other EVs down the road, he wrote: “We’re making our Supercharger network open to other EVs later this year.” Electric vehicle charging companies that compete with Tesla in the US include ChargePoint, Electrify America, Volta, eVgo, Sema and others.
11. Chip Shortage
Tesla appears to be one step ahead compared to OEMs regarding chips, given that the EV producer designed its own chip to accommodate the needs of its autonomous software. TSLA CEO Elon Musk however has warned of continued challenges in securing microcontrollers and raw materials.
Tesla, Inc. designs, develops, manufactures, sells and lease electric vehicles and energy generation and storage systems, and offer services related to its sustainable energy products. The Company’s segments include automotive, and energy generation and storage. The automotive segment includes the design, development, manufacturing, sales and leasing of electric vehicles as well as sales of automotive regulatory credits.
The energy generation and storage segment include the design, manufacture, installation, sales and leasing of solar energy systems and energy storage products, services related to its products, and sales of solar energy system incentives. Its automotive products include Model 3, Model Y, Model S and Model X. Model 3 is a four-door sedan. Model Y is a sport utility vehicle (SUV) built on the Model 3 platform. Model S is a four-door sedan. Model X is an SUV. Its energy storage products include Powerwall, Powerpack and Megapack
From The Pit
From The TradersCommunity Research Desk