Shares of electric vehicle manufacturer, Tesla (NASDAQ: TSLA) rose over 3% last week after the company beat Wall Street’s earnings and revenue estimates for Q1 of 2022. In the quarter ended in March, Tesla reported revenue of $18.76 billion and adjusted earnings per share of $3.22. Comparatively, analysts forecast Tesla to report sales of $17.8 billion and adjusted earnings of $2.26 per share in Q1 of 2022.
Tesla reported record revenues, vehicle deliveries, and operating profit in the quarter, allowing it to end Q1 with an operating margin of more than 19%. The company also reduced its record debt to just $100 million and remains focused on growing “as fast as reasonably possible.”
Tesla’s sales were up 81% year over year while adjusted net income surged over 700% despite challenges around the supply chain. In addition to chip shortages, recent COVID-19 outbreaks have also weighed on factory operations. Additionally, prices of raw materials have increased significantly in recent months.
So, the inflationary impact of Tesla’s cost structure has resulted in adjustments to its product pricing, even though the company has looked to reduce manufacturing costs over time.
Tesla stock continues to trade at a premium
At the time of writing, Tesla is valued at a market cap of $1.04 trillion. The EV giant has created massive wealth for long-term investors as it has surged over 15,000% in the last 10-years. It reported a net income of $5.5 billion in 2021 which suggests its trailing price to earnings ratio is quite steep at 182.5x. However, analysts forecast Tesla adjusted earnings to expand by 73.6% to $11.77 per share in 2022, indicating a forward price to earnings multiple of 85.7x.
While Tesla was forced to pause operations at its Shanghai manufacturing facility in China towards the end of March, company CEO Elon Musk claimed it's on track to increase production by 50% year over year in 2022. Tesla has already delivered over 1 million vehicles in the last 12-months.
Wall Street expects Tesla sales to increase by 59.5% to $85.84 billion in 2022 and by 32.9% to $114 billion in 2023. We can see why TSLA stock continues to trade at a heft premium.
What next for TSLA stock and investors?
During the earnings call, Tesla explained its rate of growth will be driven by operational efficiency, as well as the stability of its supply chain. In recent months, Tesla factories have been running below capacity due to supply chain disruptions and chip shortages. The company has enough liquidity to fund its product roadmap as well as long-term capacity expansion plans.
Tesla is optimistic that its innovations will reduce manufacturing costs and hardware-related profits will be accompanied by an acceleration of software-related profits.
Musk also stated Tesla aspires to manufacture 20 million cars each year which will make it one of the largest automobile manufacturers in the world.
Tesla continues to expand its product portfolio and is working on a Robo-taxi without a steering wheel and pedals. The robo-taxi vehicle is expected to reach volume production in 2024. Further, the Cybertruck is on track to reach volume production next year.
Elon Musk also discussed the company’s Optimius robot and claimed it will be more valuable than its car business. Optimus which was first unveiled last August is expected to perform everyday tasks such as grocery shopping.
The final takeaway
Despite an inflationary environment, Tesla might more than double its net income in 2022. It continues to benefit from economies of scale and is a top bet for long-term investors despite its sky-high valuation.