Today’s Tesla report is far from ideal, but it certainly shows one thing. Elon Musk is likely bending over backwards to achieve maximum profitability for the company, and it’s probably working. However, this does not change the fact that Tesla’s shares are priced with abstract multipliers, considering disappointing sales expectations (although they are still up 8% year over year). Nonetheless, the report was optimistic, especially in terms of profitability prospects.
In general, a significantly higher net profit and free cash flow than forecasted slightly alleviated investors’ concerns about the company’s profitability, which has been struggling with declining margins in recent quarters. Similarly, the company expects a small annual increase in deliveries this year, while Wall Street has long speculated about a slowing momentum. On the other hand, let’s remember that such predictions cost little, and the company clearly stresses that it is talking about a symbolic increase. Therefore, it may as well turn into a decline.
What catches the eye is the significant increase in profits from energy generation and batteries, where the increase was over 50% year on year. Added to this was a 30% increase in profits from warranty repairs, as well as over 700 million dollars of additional profit from special credits purchased by emission car manufacturers at Tesla to meet regulatory standards. Revenues from this source are almost entirely the company’s net profit. Thus, we see that outside of its core business, where sales increased 2% year on year, Musk’s other business legs are doing quite well. Evidence of this is that gross margins on services and non-automotive sectors increased by 90% year on year.
However, details about the debut of a ‘budget’ car under 30,000 USD are still lacking. The company only indicated that they will disclose more at the beginning of next year. Also, the topic of robotaxis was not significantly covered. On the other hand, the company reported that the sale of the Cybetruck is a hit and it is currently the third most frequently sold electric car in the United States, without specifying exact sales figures (unofficial estimates talk of 16,000 models sold in Q3), but noted that for the first time, the model achieved a positive gross margin. However, this does not stop the shares from growing more than 10% in after-hours trading, even though sales slightly missed Wall Street estimates.
Adjusted earnings per share were 0.72 USD, compared to a forecast of 0.6 USD and 0.53 USD the previous year. Sales increased to 25.18 billion USD from 23.33 billion USD last year. This rather strong report from Tesla (there was probably no room for a stronger one, given the widespread awareness of a slowdown in the electric sector) may herald a strong start to the earnings season for the Mag7 companies. These will start reporting results next week.
Author: Eryk Szmyd, XTB analyst
Source: https://managerplus.pl/tesla-zaskakuje-wyzszym-zyskiem-netto-i-mocnym-wzrostem-poza-sektorem-motoryzacyjnym-akcje-rosna-mimo-rozczarowujacej-sprzedazy-81209
