Tesla: Tepid Reception for Sturdy Results

Written by: Laura Hoy | Hargreaves Lansdown

Second quarter revenue rose 42% to $16.9bn, as growth in vehicle deliveries and a higher average selling price helped Automotive sales rise 43% to $14.6bn. Revenue from regulatory credits shrunk while other parts of the business, like Energy and Services and Other expanded. 

Operating income rose 88% to $2.5bn. This was despite a 13% uptick in operating expenses as higher raw material, commodity and logistics costs weighed. This meant Automotive margins fell from 28.4% a year ago to 27.9%. Profits also suffered from the declining value of bitcoin and the expenses associated with the Shanghai shutdowns. These headwinds were more than offset by revenue growth.

Vehicle production rose 25% with Model Y production up 19% and Model X production up from 2,340 to 16,411. Model X deliveries rose from 1,895 to 16,162. Model Y deliveries were up 20% to 238,533.

Manufacturing challenges persisted through the quarter, limiting the ability to run gigafactories at full capacity. The shutdowns in Shanghai persisted for most of the quarter, resulting in higher per-car costs.

Free cash flow was $621m in the second quarter, in line with last year. The group’s net cash position improved from $6.8bn to $14.5bn improved profitability and lower debt obligations.

Shares were up broadly flat in after-hours trading.

Tesla’s second quarter results received a tepid reception from investors despite growing operating margins in an increasingly challenging environment. However, the focus was on a decline in Automotive gross margins, which fell from 32.9% in the first quarter to 27.9%. The more cars that rattle through Tesla’s enormous gigafactories the lower the per-unit costs, so the disappointing delivery numbers released earlier this month meant investors had already braced themselves for a step down in profitability. On the bright side, this should be a short-term problem. As we saw in the first quarter, fully functioning factories send dollars straight to the bottom line. Once supply chain bottle necks ease and the factories are humming along at full capacity, margins will get a boost.

Elon Musk’s affinity for cryptocurrency also chipped away at profits, with the group calling out Bitcoin impairments as a thorn in its side. It’s unclear exactly how much the group lost to the sell-off in crypto, but with 75% of its holding now converted into more stable currency, most of the damage has been recognised.

However, the bitcoin losses point out an important part of the Tesla investment case—its eccentric owner. While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions.

Related: Burberry: Looking Smart Under New CEO