Tesla Earnings Preview: Delivery Outlook, Profit Margins And Bitcoin Hit In Focus

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Updated at 9:41 am EST

Tesla  (TSLA) – Get Tesla Inc. Report shares moved higher Wednesday ahead of its hotly-anticipated second quarter earnings after the closing bell, with investors focused on near-term delivery forecasts and narrowing profit margins for the clean-energy carmaker.

Tesla, which suffered through supply chain disruptions, chip shortages and a 22-day shutdown at its gigafactory in Shanghai over the three months ending in June, saw deliveries fall 17.7% from the previous period to a a weaker-than-expected 254,695 units.

Raw materials prices, as well as labor costs linked to overall production cycles, have risen steadily over the past year, while Nickel– a crucial component in EV battery making — is up around 20% at $21,200 per ton on the London Metals Exchange. Battery-grade lithium carbonate prices are up around 60% from early 2021 levels.

Tesla told investors in April that “the inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible”, and has since initiated layoffs in California while boosting prices for its Model S and Model Y sedans.

Still, the group is expected to post a 43% year-on-year gain in group revenues, at $17.2 billion, with a bottom line of $1.86 per share. Key to the update, however, will be Tesla’s expectations for the second half of the year, and whether the “gigantic money furnaces”, as Elon Musk has described his new gigafactories, can ramp-up output over the September and December quarters to meet the Street’s 1.5 million annual delivery target.

However, ramping-up production amid supply chain disruptions, input cost hikes and early stage costs will likely impact the group’s automotive profit margins, which hit a record 30.6% in the fourth quarter of last year, but narrowed to 26.5% over the the three months ending in March. 

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“With deliveries soft this quarter due to the China shutdown, Tesla’s ability to preserve margins this quarter will be front and center,” in today’s earnings report, Wedbush analyst Dan Ives noted earlier this week, adding the group’s near-term outlook will overshadow its second quarter well-documented second quarter challenges. 

Tesla shares were marked 1.4% higher in early Wednesday trading to change hands at $746.80 each, a move that would leave the stock with a year-to-date decline of around 30%.

A pullback in deliveries and narrowing margin aren’t the only concerns heading into today’s second quarter earnings report, with investors counting the cost of both China’s Covid lockdown on its overall production and the impact of Elon Musk’s pursuit of a $44 billion takeover of social media group Twitter  (TWTR) – Get Twitter Inc. Report.

Tesla shares have fallen around 35.3% since Musk made his 9.1% stake in Twitter public on April 4 as investors discounted both Musk’s margin loans on the purchase, his sale of around $9 billion in Tesla shares and the billionaire’s growing leadership portfolio, which includes space exploration group SpaceX, The Boring Company construction company and neurotechnology specialists Neuralink Corp.

The group is also facing a significant writedown on its $1.5 billion holding in bitcoin, which has fallen some 60% since the end of March.

Estimates of Tesla’s bitcoin carrying costs vary, but the timing of the purchase suggests a level of around $32,600. That value, of course, surged in the latter half of 2021, when bitcoin hit an all-time high of around $67,000, but now looks far more fragile after crashing below the $20,000 level last month.