Tesla Quarterly Profit Soars To $3.3 Billion As Supply Chain, Covid Woes Cloud Outlook

Tesla Inc., the world’s leading producer of electric vehicles, reported its most profitable quarter in company history fueled by record deliveries in 2022’s first quarter though ongoing supply chain challenges and slowed production in China related to the pandemic are likely to be a drag on operations for the time being.

Billionaire Elon Musk’s Austin-based company said it earned a best-ever $2.86 per share, up from $0.39 a year ago. Net income was $3.3 billion, up nearly seven-fold from a year ago, on revenue of $18.8 billion, which jumped 81%. The results surpassed consensus expectations of $2.26 per share, excluding some items, and revenue of $17.8 billion. Profitability in the quarter got a boost from Tesla’s lucrative sales of $679 million of pollution credits to other automakers, a source of free money it’s enjoyed for a decade.

The upbeat results come after Tesla this month said it delivered 310,048 vehicles to customers worldwide, the highest volume to date. However, a three-week shutdown of production operations at its Shanghai plant that may have cost the company up to 50,000 units worth more than $2 billion and ongoing restrictions for its operations in China cloud the near-term outlook. Musk’s EV juggernaut, like all other automakers, is also contending with supply-chain disruptions, particularly a shortage of semiconductors, and rising prices for the raw materials that go into the batteries and other components that power its vehicles.

“Despite numerous supply interruptions, including shutdowns in our Shanghai factory and nearby suppliers due to COVID, we’ve continued making progress and achieved our best-ever vehicle deliveries,” Tesla CFO Zack Kirkhorn said in a conference call. “We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year.”

Kirkhorn confirmed that Tesla’s Shanghai plant lost “about a month” of production but resumed work this week. Media reports say workers there are essentially living at the factory to prevent exposure to the latest coronavirus outbreak in China.

Dan Ives, an equity analyst with Wedbush, said the company’s quarterly gross margin of 32.9% beat a consensus expectation of 31% and speaks to improving manufacturing efficiency.

“This was particularly impressive in light of the dramatic headwinds Tesla is seeing in China along with increasing component costs across the board,” he said in a research note. “The elephant in the room is the shutdown of Giga Shanghai so far in 2Q (3 weeks closed and now slowly up and running) which we believe will cause a ~50k headwind to units for Tesla in the quarter as the China zero Covid policy remains a slowly fading overhang on the stock.”

(For more on the Shangahi shutdown, see Shanghai’s Covid Lockdown Deals A Blow To Elon Musk’s Tesla Production Goals)

The addition of new auto-assembly plants in Berlin and Texas will help offset the China slowdown though the two facilities won’t be running at full capacity for months. “The rate of growth will depend on our equipment capacity, operational efficiency and the capacity and stability of the supply chain,” the company said in its earnings release. “Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022.”

Musk, who is pursuing a hostile takeover of Twitter, said the carmaker is developing a new vehicle that will join its lineup: a dedicated robotaxi. It’s “highly optimized for autonomy, meaning it would not have a steering wheel or pedals,” he said. “It’s fundamentally optimized for trying to achieve the lowest but fully considered cost per mile, cost per kilometer.”

The company “aspires” to have the vehicle in production by 2024, Musk said, though his track record for such things is spotty. Other new Tesla models, namely the Cybertruck, Semi and Roadster, are years behind his initial prediction and have yet to go into production. Still, “And we remain on track to reach volume production of the Cybertruck next year,” he said.

Additionally, Tesla’s next-generation 4680 battery, larger, more powerful and potentially cheaper than its current 2170 cells, should be “in volume production sometime … have some towards the end of the third quarter and certainly in the fourth quarter,” Musk said. They’ll be produced at both its Giga Berlin and Giga Texas plants, he said.

During Tesla’s hour-long results call Musk didn’t comment on buying Twitter nor was he asked about it. Likewise, he didn’t comment on his continuing spat with the Securities and Exchange Commission and a lawsuit by Tesla investors related to his comments about taking the company private in 2018, which the SEC determined were false.

Tesla shares fell 5% to $977.20 in Nasdaq trading on Wednesday, before the release of quarterly results. They rebounded 5.5% to $1,030.85 at 6:31 p.m. Eastern Time in after-hours trading.