Tesla profits jump despite production turmoil and China shutdowns

Tesla withstood disruptions to production in China and the high costs of scaling up new plants in Texas and Germany to report a 57 per cent jump in adjusted earnings per share in its latest quarter.

The electric carmaker’s second-quarter results brought a degree of relief after the company had warned of production and supply strain stresses. Revenue, at $16.9bn, was up 42 per cent from the year before, though the figure fell slightly short of the $17.1bn Wall Street had been expecting.

Tesla also revealed that it had largely unwound last year’s contentious $1.5bn bet on bitcoin, as it converted three-quarters of its stake into fiat currencies in the face of tumbling cryptocurrency prices.

Chief executive Elon Musk’s enthusiasm for cryptocurrencies meant the carmaker was one of the first companies to park a portion of its cash in digital assets.

Musk warned in an internal email last month that he had a “super bad feeling” about the economy.

Asked on Wednesday whether demand was weakening, the Tesla boss said “some, maybe”, but added: “We have so much excess demand that it’s not an issue for us.” Chief financial officer Zach Kirkhorn said any fall-off in demand was “not material”.

Instead, Musk said Tesla’s “problem is overwhelmingly that of production”.

Supply chain pressures and the Covid 19-related shutdowns in Shanghai have left the company needing about 935,000 vehicle deliveries in the second half of the year to reach the 1.5mn total for which many analysts have hoped, or an increase of 70 per cent from the same period of 2021.

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Musk did not give a production forecast for the rest of the year except to say that the company was likely to achieve “record” output. He also said Tesla’s plans called for it to reach full production by the end of the year, at an annualised rate of 2mn vehicles.

Tesla had disclosed that production shutdowns in Shanghai and parts shortages had wiped as much as a quarter off its vehicle deliveries in the three months ended June 30. Though the figure of 254,695 vehicles it did ship was still 27 per cent up on a year before, it represented the first sequential quarterly drop in more than two years.

Spending on the new production facilities pushed Tesla’s closely watched gross profit margin from automotive activities down to 27.9 per cent, compared with the record 32.9 per cent margin it reported in the first quarter.

Musk said Tesla’s crypto sales “should not be taken as some verdict on bitcoin” and that they were made to maximise the company’s cash position in the face of uncertainty over Covid-related shutdowns in China. Tesla was “certainly open to increasing bitcoin holdings in future” and had not sold any of its dogecoin, he added.

The price of bitcoin has roughly halved since the end of last year, when Tesla valued its stake at just under $2bn. It said the latest sales had raised $936mn and that it had taken an impairment charge of $106mn on top of a $101mn charge taken last year.

Before the release of the results, Tesla’s share price had fallen 36 per cent since Musk first revealed he had built up a sizeable stake in Twitter. The Twitter stake stoked worries over whether his involvement in the social media company would lead to the sale of part of his Tesla holding. The tech-heavy Nasdaq Composite has fallen 13 per cent in the same period.

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Tesla shares initially jumped more than 4 per cent following the results on Wednesday, but trimmed their advance to 0.5 per cent.

For the second quarter, Tesla reported adjusted earnings per share of $2.27, up from $1.45 the year before. Based on formal accounting principles, earnings per share climbed to $1.95, up from $1.02.

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