Tesla faces test over converting higher sales into robust profits

Tesla Model 3
Electric carmaker’s quarterly earnings due after the bell

Tesla’s deliveries of new vehicles leapt out to a strong start in 2020, thanks to a successful production increase in China and continued robust demand for its electric cars in a more crowded market.

But when Elon Musk’s carmaker reports its latest quarterly earnings on Monday, Wall Street’s attention will switch to whether it can convert the higher sales into more consistent and robust profit margins.

The solid demand for Tesla’s cars was confirmed earlier this month when it reported vehicle deliveries of 184,800 in the first quarter, some 10 per cent ahead of expectations. That was despite a slump of more than 80 per cent in sales of the older Model S and X ahead of the launch of new versions of the cars.

The buoyant deliveries have fuelled hopes that Tesla’s revenue in the first quarter will top the $10.4bn most analysts have projected, up from just under $6bn the year before.

The low sales of its older and most profitable models, however, is one factor clouding the profit picture at an unusually complicated moment for the company. The chip shortages faced by the entire car industry have been one concern, and come at a time when Tesla is already facing challenges gearing up its supply chain to handle new models and production facilities. Higher supply chain costs were one issue behind the disappointing profit performance Tesla reported in the final months of 2020.

Other factors complicating the picture and potentially bringing higher costs include preparations for the start of production at new plants in Berlin and Texas this year, the recent introduction of the Model Y in China, and the planned launch of pick-up and semi trucks.

For the first quarter, most analysts expect Tesla to report gross profit margin from automotive operations that is roughly in line with the 24.1 per cent of 2020’s fourth quarter. Adjusted earnings before interest, depreciation and amortisation are forecast to reach about $1.8bn, double the level seen a year before.

Pro forma earnings per share are projected to hit 79 cents, nearly double the 41 cents seen a year before.

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