Electric carmaker remains a marmite stock to most – you either love it or hate it
Thursday 28 Jul 2022 Author: Steven Frazer

Elon Musk has a lot on his plate these days. What with tangling with Twitter (TWTR:NYSE) over spambots, sending Starlink satellites into space and crusading on free speech. Yet the industrious entrepreneur’s primary passion project remains Tesla (TSLA:NASDAQ), and building it into the world’s most important carmaker.

Millions of investors have been lured into the Tesla growth story by the billionaire’s sheer chutzpah, and they have largely been rewarded for their loyalty, with the share price having grown 10-fold in five years. Yet, like so many other growth companies, the stock has struggled this year as investors weigh the various impacts of soaring inflation, clogged supply chains, war in Ukraine and slowly economies worldwide.

The shares have lost 33% in 2022 to date.



So where do investors stand now, in the wake of last week’s (20 July) second quarter earnings? As usual, there’s lots to unpack, not least the sideshow that came after Tesla said it had sold $936 million worth of bitcoin, about 75% of its holding in the cryptocurrency, to shore up liquidity concerns.

What the conference call did show is that Musk remains as finely attuned to Tesla’s travails as ever. He dived deep into manufacturing minutiae, supply chain snarl-ups, and vehicle demand, shying away from pontificating about semi-distant technologies (AI-powered robots, robotaxis et al) as he has done in the past.

Sticking to the script is not something investors have come to expect from Musk but a more prosaic presentation was no bad thing. Despite numerous hurdles that have included Covid shutdowns at its Shanghai plant, global economic uncertainty and the constant hoopla that surrounds Musk, the world’s most valuable car company reported another solid quarter.

SECOND QUARTER FORECASTS BEATEN

Tesla topped second-quarter revenue and earnings estimates with $2.27 EPS (earnings per share) versus a $1.81 forecast, on revenue of $16.93 billion, more than $180 million more than Wall Street expected. Vehicle deliveries did fall compared to the prior quarter (about 254,700, down from 310,000), as did automotive gross margins, from 32.9% in Q1 to 27.9% in Q2, although that too beat analyst predictions, according to data collator ConsensusGuru.

That said, automotive gross margins were 28.4% in Q2 2021, and Tesla faces substantial production ramping costs at its Berlin and Shanghai factories, recently called ‘gigantic money furnaces,’ by Musk, which will likely drag on profit margins for the rest of the year.

The latest three-month period was a unique quarter for Tesla due to a prolonged shutdown of its Shanghai factory, Musk said but despite these challenges, it was one of the strongest quarters in Tesla’s relatively short history. Company officials said their pre-Shanghai shutdown goal of increasing vehicle output by 50% remains within reach, even after lockdowns in May slowed production.

If anything, Tesla could benefit from more manufacturing capacity. Company executives swatted away questions about an inflation-driven decline in demand for Tesla vehicles, with Musk bluntly declaring that: ‘Tesla does not have a demand problem. We have a production problem.’



PRESSURE ON TO DELIVER THE DREAM

Eventually however, Musk will need to back up some of the grandiose talk and promises for Tesla’s next generation of ground-breaking products. Musk said Wednesday that he hopes to start delivering Tesla’s long-awaited Cybertruck in mid-2023 having announced the vehicle in 2019, and he boasted that the company will ‘solve’ self-driving technology gremlins this year.

But previous proclamations on both fronts haven’t materialised, and rival automakers are closing in on Tesla’s EV lead, with Chinese bid data company Baidu (BIDU:NASDAQ) now venturing into the EV space by unveiling an all-electric, autonomous robo-taxi that could hit cities by 2023.

Musk often makes media waves for his off-the-factory-floor antics but Tesla’s Q2 was a decent performance given unprecedented obstacles, or so investors clearly thought, judging by the 10% share price jump in response. For now, there is little in the latest figures and commentary likely to queer the pitch for Tesla stock fans, but nor was there much to convince the sceptics either.

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