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

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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.

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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.

“In addition to chip shortages, recent COVID-19 outbreaks have been weighing on our supply chain and factory operations,” the company said. “Furthermore, prices of some raw materials have increased multiple-fold in recent months. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.”

Tesla’s filing didn’t provide specific information about what’s happening at Tesla’s Shanghai plant, which may have restarted production this week. Media reports say workers there are essentially living at the factory to prevent exposure to the latest coronavirus outbreak in China. The company also hasn’t said if it brought back 100% of its Shanghai workforce and is receiving parts and components at the same speed and volume that it did prior to the current Covid crisis.

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)

Tesla’s general target is to grow sales 50% annually for the foreseeable future. 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. “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.”

Company executives, possibly including Musk, will discuss the quarterly results on a conference call that begins at 5:30 p.m. Eastern Time.

Tesla shares fell about 5% to $977.20 in Nasdaq trading on Wednesday, prior to the release of quarterly results.

(Updates to follow)

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