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Tesla moves up a gear, on course to double annual profits

Elon Musk

Tesla's share price leapt 2.5% in after-hours trading in New York yesterday, as the company reported after markets closed that Q1 revenue came in at $18.76bn, beating expectations for $17.80bn. Earnings per share also exceeded expectations, coming in at $3.22 versus estimates of $2.27.

Tesla share price up as Q1 results defy expectations

Tesla's Q1 results will be welcome news for investors, while also helping to prop up the Nasdaq after a turbulent day. The tech-heavy index was clobbered yesterday after the shock of Netflix’s subscriber miss on Tuesday evening. That sent the streaming platform's share price plunging 35% on Wednesday, while Tesla finished the day down almost 5% on concerns that its Q1 earnings might disappoint.

That turned out not to be the case, as revenue came in at $18.76bn, up more than 80% on the year-ago period and almost $1bn above expectations. Meanwhile, profits came in at a record $3.3bn, or $3.22 a share. This is a simply staggering improvement given that full-year profits in 2021 totalled $5.5bn.

On that basis Tesla is on course to post annual profits of $12.2bn, assuming no deterioration in margins in the meantime. The shares are set to open strongly higher when US markets reopen later today.

Shanghai factory shutdown barely leaves a scratch

There had been a worry that Covid lockdowns in China, which forced Tesla's Shanghai factory to pause operations, and various supply chain issues might impact margins.

These concerns appear to have been premature, as gross margin rose in Q1 to 32.9%, up from 30.6% in Q4 and up from 26.5% a year ago. The company said that they had to raise prices to offset the challenges to supply chains.

Free cash flow also surged, rising to $2.23bn, well above estimates of $671.8m, though Tesla was at pains to warn that supply chain issues were likely to continue throughout 2022.

Regulatory credit sales also helped boost profits in Q1, with revenue here coming in at $679m.

Bright outlook

As the company looks to the rest of 2022, aside from the issues at its Shanghai factory there are lots of positives. The new plant in Germany has finally opened, albeit later than scheduled, and should help Tesla boost its production levels this year, despite a backdrop of rising costs and chip shortages. Production and deliveries are also set to begin from the new Texas factory this month.   

Having delivered over 310,000 vehicles in Q1, and having fallen just shy of 1m vehicle deliveries in 2021, CEO Elon Musk, said he expects Tesla to deliver up to 1.5m vehicles in 2022, a high but achievable target. The figure marks a decent increase on the previous target of 1.3m, with Musk saying he expected Q3 and Q4 to bring a significant improvement as new factories scale up their production capacity and boost their efficiency.

The upwardly revised target means that management expect to achieve 50% growth in vehicle deliveries this year, a goal which a year ago might have seemed fanciful. But, having seen the progress made in Q1, the goal now appears within reach, as does a doubling of profits.

Of course, much will depend on the resilience of the company’s supply chain and the availability of materials used in batteries. To that end Tesla said that it is diversifying its batteries, with half of its vehicles equipped with a lithium iron phosphate battery which doesn’t contain cobalt or nickel. 

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