Tesla: Shares Stall Despite Strong Performance

Written by: Laura Hoy | Hargreaves Lansdown

Fourth quarter revenue rose 65% to $17.7bn, above market expectations, reflecting a 71% increase in Automotive revenue to $16.0bn.

Operating profits rose from $575m in 2020 to $2.6bn, despite a $245m share-based award for CEO Elon Musk. The increase reflected higher deliveries with lower per-vehicles costs as well as improved profitability in leasing, Service & Other.

Operating expenses rose 50% to $2.2bn, reflecting the cost of getting new factories up and running.

Supply chain and labour issues meant factories were unable to run at full capacity during the period, an issue that’s expected to persist in 2022.

Vehicle production rose 70% to 305,840 while deliveries increased 71% to 308,650. Increased demand for Model 3/Y vehicles offset a 38% decline in Model S/X deliveries.

The new Gigafactory in Texas began building Model Y vehicles in late 2021 and the German Gigafactory is still in the process of obtaining a manufacturing permit. While the new factories come online, the group expects to extend capacity at the Fremont factory to beyond 600,000 per year.

Free cash flow was $2.8bn, up from $1.9bn a year ago. The group finished the quarter with net cash of $10.9bn, up from $7.7bn last year.

Shares were broadly flat in after-hours trading.

Tesla’s done all it can to impress investors in the fourth quarter, from an earnings beat to putting CEO Elon Musk himself on the earnings call. But The market shrugged off Tesla’s 65% revenue increase.

The revenue uptick was somewhat par for the course—estimates for the electric vehicle giant have been rising ever since production data smashed expectations with more than 308,000 vehicles delivered. Profits were also on the up, despite a hefty share-based reward for Musk and a 50% increase in operating expenses as the group worked to get two new factories online.

It wasn’t all bright lights and shiny vehicles though. The group joined the growing queue of companies to call out supply chain issues as an obstacle. In Tesla’s case the bottlenecks are keeping the existing factories from operating at full capacity, a headwind that’s expected to persist in 2022. This is problematic because investors have long been waiting to reap the benefits of the group’s operating leverage which should cause profits to rise faster than revenue. Making Tesla vehicles comes with high fixed costs—but once covered each additional car comes with a hefty profit attached.

Ultimately the fourth quarter was another good one for Tesla, but with a nosebleed valuation, the group’s been unable to escape the jittery tech sell-off as inflation and interest rate worries plague the wider market.

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