Revenues and earnings beat some Wall Street estimates but when looking under the hood there were lots of moving parts in the car-maker’s results statement.
1: Bitcoin boost
Having spent US$1.5bn on a big bitcoin purchase during the quarter, raising eyebrows among analysts, investors and ESG commentators, chief financial officer Zachary Kirkhorn said the cryptocurrency holding had been trimmed by 10% during the quarter.
The company made proceeds from sales of digital assets amounting to US$272mln with a US$101mln “positive impact” to profits.
Said analyst Naeem Aslam: “The question which many investors are asking themselves is if this will be a regular occurrence for Tesla and if profits made through trading of Bitcoin will continue to be accounted in reducing its operating expenses.
“Nonetheless, Tesla has left a clear path for other S&P 500 companies how they can also use this asset, Bitcoin, to diversify their treasury exposure and make a decent profit that can help reduce their expenses.”
A crypto gain is all well and good, but this isn’t really what corporate treasuries are all about, said Nicholas Hyett at Hargreaves Lansdown.
“Investors could well argue that if they wanted to have exposure to Bitcoin they would have bought some themselves and don’t need Tesla to do it for them.
“Still Tesla has never played by the rules – so far that hasn’t stopped it being a winner.”
2. New models and Giga gains
As well as being a record quarter for sales, the company reported progress on the delayed new models, with the first remodelled Tesla Model S vehicles screeching onto customers’ driveways by May and Model X deliveries to begin in the third quarter.
Tesla also pointed to the ramping up of Model Y production at Fremont in California and Giga Shanghai going well, while the Berlin buildout said to remain on course for production and deliveries by the end of 2021.
Looking at the road ahead, Musk expects production volume growth to exceed 50%, saying the company is on track to start production and deliveries at its new factories in Texas and Berlin.
So, overall, guidance was positive from the company: “In some years we may grow faster, which we expect to be the case in 2021. The rate of growth will depend on our equipment capacity, operational efficiency and capacity and stability of the supply chain.”
3. Chip on the hard shoulder?
Like all car companies, Tesla has been dealing with a global shortage of microchips that started to become apparent last year, with Musk saying it had “some of the most difficult supply chain challenges” during the quarter.
But the self-called Technoking said Tesla was “mostly out of that particular problem” as it was able to cope by adapting its software so it could use chips from different suppliers.
HL’s Hyett felt there was a “complete lack of guidance” around near-term production headwinds, expecting that the company won’t be exempt from the chip shortage, given the importance of ramping up production.
The chip shortage is a major unknown for every automaker, acknowledged bearish broker Wedbush, and is what is behind the company not raising its generic annual delivery growth guidance of 50%, “which likely will be exceeded by 100k-150k vehicles in our opinion if the supply chain starts to normalize a bit in 2H”.
“While the bears will laser focus on the chip shortage spoiling the EV party for Tesla in 2021, we believe the reality is that demand is spiking globally for Tesla’s/EVs, the company’s flagship production build outs in Berlin and Austin appear right on schedule, and the company has a treasure chest and cash flow to fund future R&D/capex endeavors in this EV arms race for the next decade.”
4. Margins motoring or mirage?
Looking beneath the headline revenue figure, strong sales from cars made in the newer Shanghai Gigafactory were partially offset by an 83% decline in higher-priced Model S/X vehicles, as Tesla shifted all of production towards its cheaper and lower-margin models.
The Model 3, three and a half years after launch, was the best-selling premium sedan in the world, outselling long-time favourites such as the BMW 3 Series and Mercedes Benz EClass, which “demonstrates that an electric vehicle can be a category leader and outsell its gas-powered counterparts”, while the company said it believes the Model Y crossover SUV “can become not just a category leader, but also the best-selling vehicle of any kind globally”.
Despite the shift in sales and a 13% decline in average sales price, operating margins of 5.7% were up on the preceding quarter’s 5.4%, reflecting lower average manufacturing costs.
Due to the launch of new models and the lower costs at the China gigafactory, the average cost per vehicle came in below US$38,000 in the quarter, a massive improvement on the eye-watering $84,000 when it began production of the Model 3 in 2017.
Automotive gross margins improved by more than one percentage point to 26.5%, however if the US$518mln made from selling regulatory environmental credits is excluded, automotive gross margins would have been 22%.
5. High Wall Street expectations
The stock fell in aftermarket trading, as stripping out the regulatory credits, the bitcoin benefit and lower taxes leaves a true earnings figure that was “a large miss”, as brokerage Roth said.
When Tesla entering the S&P 500 on 21 December its shares were priced at $666, with the momentum taking them up to a high of $895 in January.
They have slipped back to below $740 amid a wider tech wobble that renewed the constant question from last year: whether the company could really be worth more than all its rivals put together, especially when VW, GM, Ford and the rest are ramping up their own electric vehicle offerings and have the ability to scale things up much more quickly.