The automaker stands out from rivals with record profits and 81% year-on-year revenue growth despite supply constraints.
The manufacturer’s gross margin is now the best in the sector, but it is largely due to the sale of driver assistance software (Autopilot) at 12,000 dollars each. Investors are certainly satisfied, and delivery prospects continue to grow at around 50% per year, but the potential prevention measures of American road safety against the Autopilot system could spoil the party as Tesla bets everything on its software to fuel future growth.
Last week, Tesla posted a new revenue record for the first quarter of 2022, with $18.8 billion against estimates of $17.2 billion, an increase of 81% year-on-year and a margin gross of 29.1% against an estimate of 25.8%. Free cash flow reached $2.2 billion versus an estimate of $672 million, and an annual total of $7 billion translating into a return of 0.7%. Investors, who pushed the stock up more than 10%, were enthusiastic about the results. Here are the main lessons from the results of this first quarter:
- The gross margin of the automotive segment reached 32.9% against forecasts of 28.4%, a level never seen before in this sector. Tesla particularly stands out when it comes to operational efficiency in the chart below which shows quarterly gross margin for some of the major automakers. Its lead in gross margin points leaves no doubt about its status as a leader in the sector.
Gross margins of car manufacturers in %
- Tesla has said that its profits will increasingly be driven by driver assistance software, and it’s worth pointing out that the latter largely explains the automaker’s gross margin, since following a recent rise in price it now reaches the sum of 12,000 USD.
- Tesla confirms its previous forecast of 50% annualized growth in vehicle deliveries, which should put the company among the very best automakers in terms of annual production.
- Tesla managed to post record gross margin and profits despite severe supply constraints. Lockdowns in China are a major production risk for this market. The manufacturer believes that these supply problems should persist throughout the year.
- At his company’s earnings conference, Elon Musk claimed that the company is working on a Robotaxi project that could go live as early as 2024. We think investors shouldn’t give too much importance to this project, because Tesla will face increasing competition and will probably spend its time improving the designs of its existing models to increase demand.
- Tesla saw its solar business drop 48% year-on-year due to import restrictions.
- The automaker hopes to ramp up the pace of its battery manufacturing plant in Nevada, and its capital expenditures are currently above recent estimates.
The quarterly result should silence skeptics, but in his usual style, Elon Musk brushed off supply issues as if they were in no way likely to impact deliveries. This is a potentially dangerous philosophy for investors, as it seems unlikely that Tesla will continue to escape the supply problems facing the competition at a time when the company has just exceeded the figure of the million cars produced in one year.
Another major risk involves Tesla’s Autopilot software. In a Bloomberg article, it was pointed out that Tesla’s driver assistance system is under increasing regulatory scrutiny, and that preventive measures, or even a ban on sales, will carry a blow to Tesla’s earnings growth. This is probably the biggest risk Tesla investors face right now.