Tesla Reports Quarterly Profit Decline But Year-Over-Year Revenue Growth
Introduction
On Wednesday, Tesla released its second-quarter earnings report, which told a story of quarterly declines caused by production challenges and year-over-year growth. Despite facing various difficulties, including supply chain constraints, inflation, and an extended shutdown in China, the company’s share price rose as much as 4% and settled up about 1.45% in after-market trading.
Revenue Declines: A Quarter of Production Challenges
Tesla generated $16.9 billion in revenue in the second quarter, down from $18.8 billion in the first quarter. This decline was also lower than the $17.7 billion it brought in during the fourth quarter of 2021. The company’s automotive margins shrank to 27.9%, down from the previous quarter’s 32.9% and the 28.4% reported in the fourth quarter.
Year-over-Year Growth: A Rosy Picture
Despite the sequential decline, Tesla’s year-over-year results painted a far rosier picture with revenue increasing 42% from the $11.96 billion in revenue from Q1 2021. Profits nearly doubled from the $1.14 billion, or $1.02 a share, it earned in the same period in 2021.
Analyst Expectations: A Comparison
According to data from Yahoo Finance, analysts expected Tesla to generate Q2 2022 revenues of $17.2 billion and $1.85 in earnings per share. In comparison, for the second quarter of 2021, Tesla reported $11.96 billion in revenue and $1.45 in earnings per share.
The Bottom Line: Production Challenges vs. Demand
Tesla’s bottom line was pulled into two different directions: it was aided by selling its EVs at a higher price and selling regulatory credits worth $344 million while it saw inflation and other costs cut into its automotive margins. The company’s CEO, Elon Musk, repeatedly emphasized that production, not demand, is the primary inhibitor to the company’s growth.
Production Challenges: A Long-Lasting Issue
Musk stated during the call, "Right now our problem is very much production. So, we have long leads on — as anyone can tell if they order a car — if you order a Model Y it will arrive sometime next year. So this is clearly not an issue for many months (referring to demand). For us, our problem is overwhelmingly that of production." Despite these issues, Musk highlighted some of the company’s successes, including ending the quarter with the highest vehicle production month in its history as its Shanghai factory came back online and its new facilities in Berlin and Austin ramped up.
Bitcoin Sales: A Loss of $150 Million
Tesla also revealed that it has sold 75% of its Bitcoin holdings this quarter. The company appears to have lost around $150 million on its bet in the cryptocurrency since its 2021 purchase, selling the coins for $963 million. Tesla stated that the value of its remaining ‘digital assets’ is $218 million.
Other Updates: Cybertruck and FSD Beta Software
Tesla provided a few other updates, including announcing that it would be increasing production at its Fremont factory to meet growing demand for electric vehicles. The company also confirmed that it will begin producing the Cybertruck in 2023, with production expected to ramp up throughout the year.
Conclusion
While Tesla’s second-quarter earnings report showed quarterly declines due to production challenges, the company’s year-over-year growth and continued focus on innovation and expansion are promising signs for its future success. As the electric vehicle market continues to grow, Tesla is well-positioned to take advantage of this trend and become an even larger player in the industry.
