Tesla extends profit streak on strong Q1 sales of electric car—and pollution credits

Elon Musk Tesla

Tesla stayed profitable in the first quarter, posting earnings and revenue figures that topped consensus expectations, helped by the electric-car maker’s robust first-quarter vehicle deliveries and sales of pollution credits to other automakers. The company also said it’s targeting annual growth in deliveries of 50% a year.

The Palo Alto, California-based company led by billionaire Elon Musk reported net income of $438 million for the quarter that ended in March, with 39 cents of earnings per share on a GAAP basis, and 93 cents per share, excluding some items, beating a consensus estimate of 79 cents a share. Revenue was $10.4 billion, just ahead of equity analysts’ expectations of sales totalling about $10.3 billion.

Sales of regulatory credits to manufacturers of gasoline-powered cars and trucks rose to $518 million, the company said. That was the most ever for a single quarter. Those funds, which are pure profit for Tesla and nearly impossible for analysts to accurately estimate, have underpinned the company’s profitable streak that’s lasted more than a year after a decade of losses.

The results were a “strong print for Musk & Co.” even though “total revenues were slightly below bullish expectations,” Dan Ives, an equity analyst for Wedbush, said in a research note. “In a nutshell, we believe the (gross margin) performance was a standout relative to Street fears heading into the print,” as the company reported a GAAP growth margin of 21.3% compared with consensus estimates of 21%.

Tesla’s seven-quarter streak of profitability comes as it races to expand production in China, open its first European auto-production facility near Berlin and complete construction of a Gigafactory in Austin, Texas. At the same time, Musk’s company is about to face vastly more competition in every product category as companies including Volkswagen, General Motors, Ford, Hyundai, Nissan and startups such as Lucid and Rivian ramp up or launch sales of their own battery-powered cars and trucks. A push by the Biden Administration to dramatically expand sales and production of electric vehicles in the U.S. means Tesla will have to work even harder to retain its lead in that space.

“As more OEMs join our mission by launching EVs, we believe consumer confidence in EVs continues to increase and more customers are willing to make the switch,” the company said. “Our Q1 order rate2 was the strongest in our history and we are moving as quickly as possible to add more production capacity.”

The shares gained 1.2% to close at $738.20 in Nasdaq trading Monday, prior to the results release. They were down about 2% in after-hours activity.

The quarter marked “our highest ever vehicle production and deliveries. This was in spite of multiple challenges, including seasonality, supply chain instability and the transition to the new Model S and Model X,” the company said in a statement. “While the (average sales price) of our vehicles declined in Q1, our auto gross margin increased sequentially, as our costs decreased even faster. Reducing the average cost of the vehicles we produce is essential to our mission.”

Tesla reported deliveries of 184,877 vehicles to customers worldwide in January through March, more than double the year-earlier figure when the outbreak of Covid-19 briefly halted production at its plants in California and Shanghai. Still, the sequential increase from 2020’s fourth quarter was just 2.2%.

Updated versions of the Tesla’s Model S sedan and X crossover, along with increased production of Model Y hatchbacks in China, should help boost growth in this year’s second and third quarters, CFO Zach Kirkhorn said on the company’s results call.

“We expect profitability and cash generation to evolve over the course of the year in line with those improvements,” he said. “Then as we get towards the end of the year, our story will pivot towards the launch event of our newest factories in Austin in Berlin.”

Texas Crash Review

Separately, Musk, who’s net worth has surged to an estimated $179.4 billion, lashed out at media coverage of crashes involving Tesla vehicles, and appeared to reference a recent fatal collision in Texas that killed two occupants. Musk has said the company determined its partially automated Autopilot featured was not active on the vehicle at the time of the crash. Federal safety investigators are reviewing the matter.

“There was an article regarding a tragedy where there was a high-speed accident in a Tesla and there was really just extremely deceptive media practice where it was claimed be Autopilot. This is completely false,” he said.

Reports of the Houston accident said no one was at the wheel of the vehicle at the time of the collision, which caused the car’s battery pack to ignite and burn for hours. A review of the remains of the 2019 Model S appeared to indicate that, contrary to initial media reports, a driver may have been at the wheel when the collision occurred, Lars Moravy, Tesla’s vice president of vehicle engineering, said during the call.

“We inspected the car with NTSB and NHTSA and the local police and were able to find that the steering wheel wasn’t deformed, leading to a likelihood that someone was in the driver’s seat at the time to crash,” he said.

U.S. investigators haven’t yet commented on crash details.

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