CEO Elon Musk had forewarned investors of the issues Tesla has been facing in China with supply chain issues and pandemic restrictions hampering production of its electric vehicles. It comes as no surprise $TSLA’s sales from April through June fell to their lowest quarterly level since last fall. Musk just last week described new factories in Austin and Berlin as “money furnaces” that were losing billions of dollars because supply chain breakdowns were limiting the number of cars they can produce. On Saturday the company announced it sold over than 254,000 cars and SUVs from April through June, an 18% drop from last quarter and also well below the pace in last year’s final quarter.
The last time Tesla sold fewer vehicles globally was in the third quarter of 2021 when it delivered 241,000. Tesla Q1 earnings surprised to the upside, much of that beat aided by the company having 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. Now, given no relief in the supply chain crisis that has even caught up on them.
Musk used his own Twitter account, which now has over 100 million followers, to discuss the pandemic restrictions that forced the Shanghai factory to temporarily close during the quarter. Wedbush analyst Dan Ives estimates that more than 40% of Tesla’s sales come from China, and that the Shanghai factory produced about 70,000 fewer vehicles due to the shutdowns.
Tesla also signaled things are improving Saturday, saying it produced more vehicles during June than in any other month in its history. The company didn’t disclose the number of vehicles manufactured during June.
The fall in auto sales was still not as large as the rest of the industry which reported a 21% drop in sales during the second quarter as the average price for vehicles skyrocketed to a record of $45,844 amid soaring inflation, according to J.D. Power.
Tesla releases its earnings for the April-June period on July 20 the drop in sales lowers the expectations for second-quarter earnings. Given TSLA is the world’s top-seller of battery-powered vehicles and has posted net profits for nearly three years these sales numbers and upcoming earnings are a huge influence on the whole EV sector.
Just to keep it interesting as Elon Musk likes to, his $44 billion bid for Twitter is placed on hold after questioning the true valuation. He believes the spam bot users are understated by $TWTR. Much of the erosion in Tesla’s value has occurred since Musk became Twitter’s largest shareholder and then launched a takeover bid that has raised concerns, he has too much on his already crowded plate. The fall in sales adds to that.
In a May 30 interview with a Tesla owners’ club that was just released last week, Musk said that getting the Berlin and Austin plants functional “are overwhelmingly our concerns. Everything else is a very small thing,” Musk said, but added that “it’s all gonna get fixed real fast.”
What to Look for In Tesla’s Earnings
Last 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 Q1 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.
Inflation
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.
Guidance
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.
Deliveries
- 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.
Texas Relocation
Tesla has relocated its 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.
Commodity Supply Sign 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.”
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.
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.
Bitcoin
There is the issue of Bitcoin. Bitcoin has collapsed and Tesla has Bitcoin holdings and the cryptocurrency’s prices have fallen sharply since their April peak. That means there is a chance of a loss here, unless they hedged. 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.
Charging Network
Tesla’s is set to make much money from its charging network. Elon Musk tweeted last quarter 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.
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.
About Tesla
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
Source: Tesla
From The Pit
From The TradersCommunity Research Desk