Elon Musk managed to make Tesla (TSLA) – Get the Tesla Inc. Report, the benchmark in the automotive sector that the company has completely turned on its head.
Three years after bankruptcy, the car company is in excellent health.
Tesla just released first-quarter results that shattered even the most optimistic forecasts.
Net income was $3.32 billion, up 655% from the first quarter of 2021. A year ago, net income was just $438 million, according to a press release. Adjusted earnings were $3.22 per share, well above the Street consensus forecast of $2.89 per share.
Tesla’s quarterly sales rose 81% year over year to $18.76 billion. One of the striking points is also the operating margin of the automotive activities, excluding government loans. That operating margin was 30%, up over three months.
These good numbers clearly indicate that consumers are flocking to Tesla cars. The automaker produces the Model S luxury sedan, the Model 3 entry-level sedan, the Model X luxury SUV, and the Model 3 SUV.
Opening of new factories
The price increases of the group around the charismatic Elon Musk have in fact not affected demand at all. We can safely say that Tesla doesn’t have a demand problem.
However, Musk and Tesla have a problem that has yet to be resolved. The aim is to produce enough vehicles to meet the high demand.
First, in March, the billionaire opened Tesla’s first European factory near Berlin. The billionaire then inaugurated the new Tesla factory in Austin, Texas on April 7. These two factories should enable Tesla to produce 1.5 million vehicles in 2022, according to Musk. The automaker produced 930,422 cars in 2021.
In total, Tesla currently has four vehicle manufacturing facilities – Fremont in California, Shanghai in China, Berlin in Germany and Austin. Normally this should logically allow him to mass produce and meet demand. That will not be the case, Tesla has just repeated.
The reason is the interruption in the supply chain caused by the Covid 19 pandemic, the shortage of chips, which has been compounded by the sharp rise in prices for raw materials such as nickel, aluminum and even palladium.
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The three elements help in the manufacture of catalytic converters, air conditioning condensers and other important car parts. Nickel is used to make stainless steel and batteries, which are the heart of an electric vehicle as they determine a car’s range and also play a key role in the vehicle’s performance and safety.
“Running below capacity for several quarters”
This increase in commodity prices was compounded by the Russian invasion of Ukraine. Russia is a major exporter of nickel. Automakers could potentially source nickel from Indonesia, but its nickel is more difficult to use in electric car batteries, industry sources say.
“We plan to expand our production capacity as soon as possible,” Tesla said in a press release. “Over a multi-year horizon, we expect compound annual growth in vehicle deliveries to be 50%.”
However, the company added, “The rate of growth will depend on our equipment capacity, operational efficiencies and supply chain capacity and stability.”
And it warned: “Our own factories have been running under capacity for several quarters as supply chain became the main constraining factor, which is likely to continue through the end of 2022.”
Basically, problems affecting the supply chain are not going away anytime soon.
Tesla had to close its Shanghai factory for three weeks starting March 28 to comply with the lockdown imposed by local authorities amid the resurgence of the Covid-19 pandemic. That factory only reopened on April 19, but the drop in production is significant as Tesla makes an average of 2,100 vehicles a day there.
“We lost about a month of construction volume from our Shanghai factory due to Covid-related closures,” Zachary Kirkhorn, chief financial officer, told analysts during the first-quarter earnings call. “Production is resuming at limited levels and we are working to resume full production as soon as possible. This will impact overall build and delivery volume in the second quarter.”\
Tesla produced 305,407 vehicles and delivered 310,048 units in the first quarter.
“I think we actually have a reasonable chance of up 60% over the last year,” Musk said during the same earnings call. “Most likely Q2 production will be similar to Q1, maybe a little lower. But it’s also possible that we’ll pull a rabbit out of the hat and be a bit higher, but it would be cool, roughly on par.”
“But then Q3 and Q4 are much higher. So it seems likely that we can produce over a million and a half cars this year. That’s my best guess.”
According to Tesla, the California plant currently has annual production capacities of around 100,000 Model S/Model X and around 500,000 Model 3/Model Y. Shanghai can produce at least 450,000 Model 3/Model Y per year. The production sites in Berlin and Austin are in the process of increasing production rates, the automobile group announced.