Tesla Inc (NASDAQ:TSLA) shares are set to jump 5% today after shrugging off fears about the impact of China lockdowns and global supply chain bottlenecks with rocketing first-quarter profits and a higher production target for the year.
Despite supply chain issues, chief executive Elon Musk said he expects the electric vehicle manufacturer to deliver up to 1.5mln vehicles this year, up from his previous target of 1.3mln and the almost-1mln delivered in 2021.
Musk, who is expected to receive another US$23bn of stock awards triggered by these record results, said he expected the third and fourth quarters of the year to see a significant improvement in production as the newly opened gigafactories in Berlin, Germany and Austin, Texas scale up capacity and the Shanghai factory comes back on stream after the Covid lockdown in late March.
Revenues came in at US$18.76bn, a rise of 81% on last year and almost US$1bn above Wall Street forecasts, while gross margins increased to produce yet more record profits.
Net profits reached US$3.3bn in the quarter, up sevenfold from a year ago, up more than US$1bn than the previous quarter and comparing to the US$5.5bn for the whole of last year. US$679mln of regulatory credit sales helped boost profits.
Diluted earnings per share of US$3.22 were up 246% year-on-year and well ahead of the US$2.26 consensus forecast.
Despite Covid restrictions in China leading to the shuttering of its Shanghai factory since late last month, supply chain issues and increases in raw material prices, gross margins rose to 32.9% from 30.6% in the preceding quarter and 26.5% a year ago, as the company said it had to raise prices to offset some of these continuing challenges.
“Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022," Tesla said.
Free cash flow in the quarter surged to US$2.23bn, blowing estimates of US$671.8mln out of the water.
With Berlin and Austin now up and running, Tesla has stepped up a gear, said analyst laura Hoy at Hargreaves Lansdown: “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.”
After the stock rose 5% in after-hours trading to $1,031.18, she added: “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.”