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Written by: Laura Hoy | Hargreaves Lansdown
First quarter revenue rose 81% to $18.8bn, well beyond market expectations, reflecting an 87% increase in Automotive revenue to $16.9bn and a 31% increase in regulatory credits.
Operating income rose from $594m to $3.6bn. A 68% increase in vehicle deliveries as well as higher average selling prices were behind the surge, with regulatory credit sales and the benefits of scale also helping. This more than offset the impact of inflationary headwinds and a 15% rise in operating expenses to $1.9bn.
Vehicle production rose 69% with Model Y production up 61% and Model X production up from 0 to 14,218. Model X deliveries rose from 2,030 to 14,724. Model Y deliveries were up 62% to 295,324.
Gigafactories in both Berlin and Texas began to deliver Model Y vehicles during the period. Covid outbreaks in Shanghai meant the Gigafactory there was temporarily shutdown, though limited production recently restarted. The group continues to operate below capacity primarily due to supply chain issues which are likely to persist through the rest of the year.
Car sales continue to be the focus for Tesla, but over time the group expects software-related profits to make up a greater proportion of profits.
Free cash flow was $2.2bn, up from $293m last year.
Shares were up 4.1% in after-hours trading.
Deliveries and production always take top billing at Tesla, as car sales are the group’s bread and butter. The more cars Tesla can rattle through its massive Gigafactory assembly lines, the cheaper they are to make. While the costs to setup are enormous, once they’re covered, a greater percentage of each vehicle drops straight through to profit. That’s the textbook definition of economies of scale, and one Elon Musk has brought to life before our very eyes over the past year. Operating profit rose more than 500% in just 12 months—and regulatory credit sales are no longer a massive part of the equation. Tesla is well and truly making good on its promise to deliver profitable electric cars without the help of government subsidies.
As Tesla continues to develop self-driving technology Mr. Musk and co are setting up for a technological revolution which software subscriptions pad the bottom line. The cars are already set up for over-the-air updates much like your iPhone is, so if successful, this could represent a powerful way to squeeze additional profits out of existing cars.
All told, Tesla’s performance is genuinely impressive. But the stock is priced to reflect this so it takes a lot to move the needle in a positive direction. The market has little problem sending shares into freefall, though, should unforeseen challenges crop up. Musk’s impulsive behaviour doesn’t help with this. And inflationary headwinds together with the ongoing chip shortage, and there are a couple of reasons for caution.