Tesla Tops Q2 Earnings Views, But Automotive Margins Decline; Shares Gain After-Hours| Investor’s Business Daily

Tesla (TSLA) reported better-than-expected second-quarter earnings late Wednesday, even as the electric-vehicle maker dealt with plant closures in Shanghai and supply shortages. Tesla stock edged higher in active trade.

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Tesla on July 2 announced it had delivered 254,695 vehicles in Q2, roughly in line with lowered Wall Street estimates. Wedbush analyst Dan Ives estimates around 70,000 were wiped out of the quarter with the Tesla Shanghai plant shut down for two months due to Covid restrictions.

FactSet analysts expect deliveries to ramp up in the second half of 2022, with chip supply slowly increasing. Wall Street sees Tesla notching 1.4 million units by the end of the year. Of course, no one is really sure how Chinese officials might deal with another Covid surge.

Ives also notes that “while Giga Berlin and Austin factories are in significant ramp mode, this is a significant production capacity expansion for 2023 and beyond.”

However, recession fears and growing competition from U.S.-based automakers as well as Chinese and European rivals could limit Tesla’s growth.

Nevertheless, Ives says based on reservation orders globally for Model Ys, demand for Tesla vehicles is still outstripping supply by about 15% to 20%. 

Meanwhile, Tesla laid off workers from its San Mateo office that employed only 276 workers. Tesla CEO Elon Musk said the company planned to cut about 10% of salaried staff.

Tesla Earnings

Estimates: Analysts expected Tesla to earn $1.81 a share, a 25% increase from the year-ago period. Projections call for sales to rise 38% year over year to $16.539 billion.

Results: Tesla reported adjusted earnings climbed 57% to $2.27 per share. Revenue soared 42% year over year to $16.934 billion, of which $344 million came from regulatory credits.

Automotive gross margins came in at 27.9% vs. 32.9% the previous quarter.

The company’s presentation deck pointed out a Bitcoin impairment, but did not give details. It said as of the end of Q2, it had converted approximately 75% of its Bitcoin purchases into fiat currency, adding $936 million of cash to its balance sheet.

Without the Bitcoin sale, Tesla would have been free cash flow negative. Tesla’s Q2 cash, cash equivalents and short-term marketable securities increased sequentially by $902 million to $18.9 billion, driven mainly by free cash flow of $621 million, partially offset by debt repayments of $402 million.

Tesla Stock

Tesla stock rose 0.3% in overnight action after initially popping 4%. Shares rose 0.8% to 742.50 in regular trading on the stock market today.  TSLA stock is trading above its slumping 50-day/10-week moving average, according to MarketSmith.

Tesla stock is about 40% below its all-time high $1,243.49. Its Relative Strength Rating is just 38 out of a best-possible 99, while its EPS Rating is 80.

Among U.S.-based automakers with growing EV options, General Motors (GM) is up 1.1%, and Ford (F) gained 1.3%.

EV startup Rivian (RIVN) added 3.2% and Lucid (LCID) climbed 4.5%.

China-based rivals Nio (NIO) rose 0.6%, BYD (BYDDF) fell 2.6%, Li Auto (LI) dropped 3.3% and Xpeng (XPEV) lost 3.9%.

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AI Chief Departure, Twitter Drama

In an earnings call with investors, Musk was asked about how the departure of AI Chief Andrej Karpathy would affect Tesla’s timeline for Full Self Driving (FSD). Musk said: “Since Andrej was writing all the code, naturally things have come to a grinding halt.” However, he added that Tesla had “a team of 120 people in our AI group who are extremely talented” who would keep the project on track.

Tesla’s Autopilot software has been in the crosshairs of federal regulators as it investigates several crashes in which Autopilot software appeared to be engaged when Teslas slammed into stationary emergency vehicles.

Management on the call noted that they see inflation slowing down by the end of the year, which would be positive news for rising materials costs. In addition, Musk said the main issue for battery production is the “scarcity of the refining of the lithium,” which is costly, rather than its supply from mines.

Meanwhile, Musk is likely headed for a lengthy court battle with Twitter, after pulling out of the deal to buy the social media company for $44 billion.

Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.

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