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Tesla Beat on Earnings, But There's More to the Story

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Tesla’s TSLA second-quarter earnings came in at $1.95, which is great because analysts were expecting a mere $1.69. That’s more than 15% ahead.

What wasn’t as exciting was its sales, which despite growing 42% year over year to $16.93 billion, missed the expected $17.1 billion (by a sliver). The spoiler was the Shanghai factory, which was impacted by the COVID-related shutdown.

The positive factors included higher auto deliveries (up 27%) with Tesla continuing to gain share in the U.S., China and Europe; higher average selling prices; and growth in non-auto revenues.

S/X deliveries, growing 753% year over year to 16,162 units, was still 1.7% below expectations. 3/Y, which grew 20% to 238,533 was 18.2% lower than expected. As a result, total deliveries missed by 16.1%.

Overall, analysts were expecting auto sales of $15.74 billion, but Tesla’s $13.67 billion fell 13.2% short. Leasing was better than expected at 35.7% ahead of the expected $433.3 million although leasing units were 54.9% lower than expected. Regulatory credits were also about 6% ahead of expectations. This resulted in total auto revenue of $14.6 billion, nearly 11% off analyst expectations.  

For comparison, it’s worth noting that Tesla has topped total auto revenue expectations in each of the preceding four quarters. What’s more, it posted double-digit surprises in the last two. So the Chinese factory clearly had a significant impact. On a positive note, it is up and running now, and doing more than ever before with a “record monthly production level.”

As far as the rest of the business is concerned, Energy generation and storage revenue grew 8% to $866 million but fell 3% short of expectations.

And Services and other revenue grew 54% to $1.47 billion, beating the estimated $1.19 billion by around 24%.

Gross profit dollars of $4.23 billion grew 46.8%. Gross profit dollars in the auto business came in at $4.08 billion, 3.2% short of estimates.

S/X production increased 601% to 16,411 units (13.2% better than expected) while 3/Y production increased 19% to 242,169 units (19.3% below expectations). As a result, total production missed estimates by 17.8%. This is the first time that vehicle production missed estimates by such a wide margin. Vehicle production is usually within 1-2% of estimates.

Overall, cost of revenue in auto and energy generation was lower than analyst estimates and higher in Services and other (likely related to higher-than-expected volumes).

Deployed Storage and Solar missed estimates by a respective 38.9% and 12.1%.

Management also said that while higher prices and deliveries were profitability drivers during the quarter, higher raw material, commodity and logistics costs, supply chain issues, lower utilization in the Shanghai factory, negative foreign exchange effects and bitcoin impairment charges were offsetting factors.   

Conclusion

From the above, it appears that Tesla continues to see pretty strong demand. Musk remains optimistic about meeting the average annual growth target of 50% this year. And if you x out the Shanghai facility, these are some really strong numbers. Most of the profitability issues and pricing strength aren’t that different from what everybody else is seeing.

The stock continues to look grossly overvalued, unlike IAA Inc. IAA and Vroom Inc. VRM, both of which also belong to the Automotive – Domestic industry. But then Tesla’s innovative engine, brand value and its growth prospects are way better than comparable. So even as the EV market gathers momentum with competition heating up as we speak, Tesla looks set to remain a leading player.

Tesla shares carry a Zacks Rank #2 (Buy), as do IAA and Vroom.

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