ii view: Tesla profit speeds past magic $1 billion mark

Deliveries, production, and earnings have all grown, but rivals are fighting back. Buy, sell or hold?

Second-quarter results to 30 June

• Revenue up 98% year-over-year to $11.96 billion
• Net income up 998% to $1.14 billion
• Earnings per share up 230% to $1.45
• Cash and cash equivalents up 88% to $16.23 billion

ii round-up:

Electric vehicle maker Tesla (NASDAQ:TSLA) reported its first quarterly profit of more than $1 billion in these latest results.

Vehicle deliveries of 201,250 during the second quarter to the end of June helped push earnings per share to $1.45, easily surpassing analysts’ estimates of nearer to $0.98 per share.

Tesla shares rose by around 2% in after-hours US trading, leaving them down by around 6% year-to-date, although still up by more than 1,000% since it reported a surprise profit in the third quarter of 2019. Shares of US and European rivals Ford (NYSE:F) and Volkswagen (XETRA:VOW) are up by around 60% and 33% year-to-date respectively, but by only 18% and 52% since Tesla shares rallied hard from October 2019. 

Broker Morgan Stanley noted that Tesla is not only among the fastest growing auto companies in the world, but is also one of the most profitable.

Total group revenues almost doubled compared to the second quarter of 2020, coming in at $11.96 billion. Automotive revenues totalled just over $10 billion, with sales of its energy storage and solar roofing products helping to make up the balance. 

The average selling price of its vehicle declined by 2% year-over-year, aided by the lower cost of production at its China plant. Its Fremont California plant is still estimated to account for most of its non-China sales, with new factories in Texas, Austin and Berlin should have lower production costs. The Austin plant will build Tesla's Cybertruck.

Vehicle production during the quarter totalled 206,421, of which 204,081 were of its Model 3 and Y cars, its more affordable mid-range cars. That’s up from an output of just over 180,000 vehicles in the first quarter.

Challenges for Tesla during the quarter included buying sufficient parts, given the ongoing shortage of semiconductors and a recall of vehicles in China due to a required software fix. Tesla also reported a $23 million impairment in relation to the value of its bitcoin holdings. The value of the cryptocurrency fell during the quarter.   

ii view:

Tesla is headed by high profile entrepreneur Elon Musk. Founded in 2003, today the US headquartered company has a stock market value of over $630 billion (£460 billion). That compares to $81 billion and $55 billion at US rivals General Motors (NYSE:GM) and Ford and $144 billion for Germany’s Volkswagen. 

For investors, increasing production and reducing vehicle sale prices are beginning to leave Tesla looking more mainstream. Climate change and the election of a US government with green aspirations provide a positive backdrop. A previous cash raising and current cash and cash equivalents of $16.2 billion aid its potential to invest, while its own vehicle software and the development of autopilot and full self-driving capabilities all feed into prospects.  

But a 600%-plus rise in the share price since pandemic market lows in March last year has raised valuation questions. Just about all of its more traditional rivals are adding to their line up of electric or hybrid vehicles. An estimated 70 times enterprise value to adjusted earnings, or EBITDA, is still not considered to be in value territory. In all, despite clear ongoing progress at Tesla, the shares for now are arguably up with events. 

Positives: 

• Ongoing quarterly profit
• Climate change concerns are growing globally

Negatives:

• Competition from other manufacturers is increasing
• A souring Western relationship with China

The average rating of stock market analysts:

Strong hold