Tesla Profit Beats Expectations; Musk says No Demand Problem

Tesla's second-quarter profit fell 32 percent from record levels in the first quarter as supply chain issues and pandemic lockdowns in China slowed the production of its electric vehicles.

But the Austin, Texas, company still surprised analysts Wednesday with a better-than-expected $2.26 billion net profit for the quarter. Tesla stuck with a prediction of 50 percent annual vehicle sales growth over the next few years, but said that depends on the supply chain, equipment capacity and other issues.

The company made a record $3.32 billion in this year's first quarter.

Tesla's sales from April through June fell to 254,000 vehicles, their lowest quarterly level since last fall. But the company predicted record-breaking production in the second half and said that in June it had the highest production month in its history.

Industry analysts had been expecting lower earnings after the lower sales figures and tweets by CEO Elon Musk about laying off 10 percent of the company's workforce due to fears of a recession. In an interview, Musk described new factories in Austin and Berlin as “money furnaces” that were losing billions of dollars because supply chain breakdowns were limiting the number of cars they can produce.

But Tesla exceeded Wall Street expectations from April through June with adjusted earnings of $2.27 per share. Analysts polled by FactSet expected $1.81. Revenue was $16.93 billion, beating estimates of $16.54 billion.

Edward Jones analyst Jeff Windau said the earnings were better than expected. He noted that the decrease in automobile revenues from the first quarter was offset by stronger energy storage, solar and services performance.

Musk reiterated the 50 percent annual vehicle sales growth forecast but said it depends a lot on circumstances that the company might not be able to control.

Windau said the forecast “shows the confidence they have in their ability to grow the electric vehicle market.”

Tesla shares rose 1.5 percent to $753.40 in extended trading on Wednesday.

The company said it converted 75 percent of its Bitcoin investment to government currency during the quarter, adding $936 million in cash to its balance sheet. It spent $1.5 billion on the investment last year. Overall, it booked a $106 million  cost for Bitcoin, plus added costs for employee reductions.

CEO Elon Musk said the Bitcoin holdings were sold to raise cash because of uncertainty over how long pandemic lockdowns would last in China. He said Tesla is open to increasing bitcoin holdings in the future.

The price of Bitcoin has fallen about 50 percent so far this year.

Musk also said Tesla is seeing indications that inflation may be declining as prices for most commodities drop. He cautioned against making economic predictions but said commodity prices, such as steel and aluminium, are trending down.

Musk said Tesla's “Full Self-Driving” beta test software is on track to be released before the end of this year to all North American customers who want to buy it.

And with regulatory approval, it will be released in Europe and other parts of the world, he said. Despite its name, “Full Self-Driving” cannot drive itself, and Tesla warns that drivers have to pay attention all the time.

Chief Financial Officer Zachary Kirkhorn said the company is seeing “maybe a little” impact on demand due to macroeconomic issues.

Musk reiterated that Tesla has a vehicle supply problem, not a demand problem, and said it now takes six months to a year to get a new vehicle. He said the company has increased prices to “embarrassing levels” due to inflation, but he hopes to reduce prices a bit.

July 21, 2022