Musk Assures That Tesla's Long-Term Profitability Isn't At Risk Despite Latest Earnings Drop

On Wednesday after market close, Tesla Inc TSLA issued its first quarter earnings, with the earnings call taking place through a livestream on Twitter.  Although revenues and profits were close to expectations, there was a significant drop in earnings compared to last year. Shares dropped 4% upon the news. Tesla blamed the underutilization of new factories with multiple factors for pressuring margins, along with rises in costs of raw materials, commodities, logistics and warranties, along with a lower revenue from environmental credits.

First Quarter Revenue And Earnings

For the first three months of 2023, Tesla made a net income of $2.51 billion which translates to a drop of 24% from last year, while GAAP earnings dropped 23% to 73 cents, and adjusted earnings per share amounted to 85 cents, in line with Refinitiv’s average estimate.

Revenue amounted to $23.33 billion, slightly topping $23.21 billion expected, according to Refinitiv estimates, as sales rose 24% from a year ago

Automotive sales generated $19.96 billion, rising 18% compared to last year’s quarter. As for automotive regulatory credits, they dropped from $679 million to $521 million.

Energy revenue soared 148% from last year’s comparable quarter to $1.53 billion as energy storage systems deployment rose by 360% to 3.9 GWh.

First quarter deliveries and production figures

422,875 vehicles were delivered during the first three months which translates to a 36% increase from last year but only a 4% rise from the previous quarter while 440,808 vehicles were produced. 

Price Will Continue To Evolve

In response to increased competition and worsening macroeconomic conditions, Tesla has slashed prices at the beginning of the year. It now warned investors that they prices will continue to evolve, upwards or downward as there are no plans to stabilize them despite dented profits as the goal is drive demand and enable affordability at a scale. 

At the same time, Tesla is pursuing ambitious expansion plans. According to a financial filing from January, Tesla plans to commit $7 billion in 2024 and $9 billion in 2025 in capital expenditures. 

New facilities in Mexico and Shanghai

Last month, Musk announced a Tesla factory will be built in Monterrey, Mexico, followed by a recent announcement that Shanghai will be home for its facility for building Megapacks, large lithium-ion battery-based energy storage systems.

Outlook

Musk emphasized that uncertainty that is in the air is expected to affect people’s car shopping plans as consumers tend to delay large purchases during such macroeconomic times. While speaking to analysts, Musk said that he expects 12 months of stormy economic weather, cautioning that every time that the Fed raises interest rates, prices of cars increase. 

This year, Tesla expects to produce 1.8 million vehicles, with a possibility of reaching a volume of 2 million.

Cybertruck Update

As for the trapezoidal futuristic Cybertruck, Musk “alpha versions” are now being built on a pilot line. With its current four models are buit at two assembly plants in the U.S., one in Shanghai and another outside of Berlin, the Cybertruck will be produced at its Austin facility. Musk anticipates an event to kick off Cybertruck deliveries to take place in the third quarter of 2023.

Competitors Are Gaining Speed

Meanwhile, a solar-powered tonneu cover manufacturer Worksport Inc WKSP just announced it will be equipping nine automotive manufacturers. On the Worksport's cover list are General Motors’ GM electric Silverado, Ford Motors’ F electric F-150, plug-in hybrid electric version of Jeep’s Wrangler SUV, among others. Additionally, General Motors is leading the recent IRS list of EVs eligible for full the full tax incentive with most eligible vehicles. General Motors became known for learning from its mistakes so this time, it took electrification seriously as it committed to invest $35 billion through 2025 to realize a zero-emissions lineup by 2035. Following General Motors’ footsteps is Stellantis STLA with plans of investing $32.7 billion in its EV lineup by the end of 2025, with its 2025 Ram 1500 Rev electric pickup just being unveiled at the New York auto show this week. Besides also getting the benefits of Worksport's revolutionary technology, over the next year and half, Stellantis will be going full speed ahead with the Chrysler, Dodge, Fiat, Jeep and Ram brands each launching at least one EV. Moreover, Stellantis will have an all-electric brand under its umbrella by 2028 and that honor will go to Chrysler. Jeep Gladiator trucks and Dodge Dakota trucks are in for two Worksport's covers each ,with RAM getting as many as 10 covers, making a total of ground-breaking technology 14 covers for Stellantis. 

Market Share Is Showing Signs Of Eroding

By rapidly increased output, Tesla’s production has surpassed its deliveries, which caused fears of overestimated demand. However, the EV pioneer attributed the mismatch on delivery days. Despite the increased competition, Musk is confident that discounted prices are all it takes to keep customers coming, although this strategy also risks upsetting customers who paid higher prices. 

Musk Assured That Long-Term Profitability Is Safe

Musk assured investors that profits will remain strong over the long haul and among the highest in the EV field, with bottom line being posted even after the vehicle sales with feature payments such as ongoing subscription payments for super charging and self-driving and features. Additionally, Tesla raised U.S. prices for its premium Model S and X later on Thursday and although they are still 20% lower than at the beginning of the year, this move is clearly a response to margin fears as it happened days after slashing prices six times this year. Tesla shares are up 48% year to date. 

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.