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Tesla Grows Revenue 42%, But Automotive Margins Decline

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  • Tesla reported adjusted earnings of $2.27 per share on $16.93 billion in revenue in Q2 2022.
  • Automotive margins decreased from last quarter and a year ago, impacted by inflation and more competition for EV components.

Tesla reported earnings after the bell, and the results sent the stock up slightly after hours.

  • Earnings per share (EPS): $2.27 (adjusted) vs $1.81 expected, according to Refinitiv
  • Revenue: $16.93 billion, vs. $17.1 billion expected, according to Refinitiv

Automotive gross margin came in at 27.9%, down from 32.9% last quarter and 28.4% a year ago, impacted by inflation and more competition for battery cells and other components that go into electric vehicles. Automotive revenues made up $14.6 billion of the company's total, with $1.47 billion coming from services and other revenue, and $866 million from the company's energy segment.

The company generated $344 million in automotive regulatory credits revenue in the second quarter, the company said in its shareholder deck. That's a $10 million or nearly 3% decline from the same period in 2021.

CEO Elon Musk, on an earnings call Wednesday, said Tesla's new factory outside of Berlin surpassed 1,000 cars per week in June, and he expects the company's new factory in Austin, Texas to exceed the 1,000 per week production milestone in the next few months.

Tesla has grown its charging infrastructure more than its store and service centers, reporting 709 store and service locations for the quarter and 3,971 Supercharger locations (with 36,165 total Supercharger connections) in the second quarter. Those numbers represented 19% growth in store and service center locations year over year and a 34% growth in the number of charging locations.

The company offered limited detail about its investments in and sales of cryptocurrency, writing, "As of the end of Q2, we have converted approximately 75% of our Bitcoin purchases into fiat currency. Conversions in Q2 added $936M of cash to our balance sheet." Overall, the company's cash and cash equivalents increased by $847 million during the quarter. Tesla made waves among crypto enthusiasts when it announced in early 2021 that it had purchased $1.5 billion worth of bitcoin.

Musk explained on Wednesday's call, "The reason we sold a bunch of our bitcoin holdings was that we were uncertain as to when the covid lockdowns in China would alleviate so it was important for us to maximize our cash position." He added, "This should be not taken as some verdict on Bitcoin." CFO Zachary Kirkhorn and Musk confirmed that Tesla had not sold any of its dogecoin.

With two new factories now standing in Texas and outside of Berlin in Germany, Tesla has kept its soft guidance for "50% average annual growth in vehicle deliveries," over a "multi-year horizon."

Tesla still counts its hotly anticipated Cybertruck (announced in Nov. 2019), electric Semi truck (unveiled in Nov. 2017), updated Roadster concept (also unveiled in Nov. 2017), and other speculative projects like the humanoid robot as "in development." On Wednesday, in response to an investor's question, Elon Musk said Tesla is hoping to start delivering the Cybertruck, an experimental looking pickup, in the middle of next year.

Inflation uncertainty

Russia's brutal invasion of Ukraine and Covid outbreaks in China exacerbated ongoing semiconductor and parts shortages, along with other supply chain snags. Covid restrictions in Shanghai forced Tesla to temporarily suspend or limit production at its factory there during the second quarter of 2022.

In late May, Musk lamented the high costs of starting up production at new factories in Austin, Texas and Grünheide in Brandenburg, Germany. During an interview with Tesla Owners Silicon Valley, a company-recognized fan club, Musk said the two new factories "are gigantic money furnaces."

Earlier this month, Musk said in a tweet that Tesla could lower prices for its electric cars if inflation "calms down."

On Wednesday's earnings call, Tesla CFO Zachary Kirkhorn said, "Austin and Berlin ramp inefficiencies will continue to weigh on our margins for the balance of the year. However, the impact should reduce as we increase ramp."

And Musk remarked optimistically, "I think inflation will decline towards the end of this year," but warned investors to take that prediction with a grain of salt.

Executives on the call said that, for most commodities, Tesla is now seeing a downward trend towards the end of this year or next year. However, Musk said there were exceptions. "The processing of lithium is insane," he said and once again called on entrepreneurs to enter the lithium refining business. "You can't lose. It's a license to print money," he said.

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