Dissecting Tesla's Mixed Earnings Announcement
Summary
- In 2020, Tesla received $1.58 billion in EV tax credits, but only made $721 million total, so the company actually lost $859 million from making EVs! Clearly, that trend is persisting in the first quarter of 2021.
- However, Tesla is becoming increasingly efficient, so the focus is now shifting to its new Berlin factory. If Tesla can finally make money on its EV manufacturing without incorporating its EV tax credits, then this will become the big news - that Tesla can potentially compete long term with the efficiency of the legacy auto manufacturers like Ford, GM and VW Group.
- The latest FOMC statement and Fed Chairman Jerome Powell's press conference just confirmed that we remain in a "Goldilocks" environment of strong economic growth and ultra-low key interest rates.
Tesla's (TSLA) first-quarter announcement last Monday was very interesting. Let me start with the good news. The company's revenue rose 74% to $10.39 billion, which was 1% better than the analysts' consensus estimate of $10.29 billion. Tesla also earned $438 million, or 93 cents per share, in the first quarter, which was 17.7% higher than the analysts' consensus estimate of 79 cents per share. So far, so good.
Now, here is the bad news. Tesla collected a record $518 million in carbon/EV tax credits, plus $101 million in short-term gains from selling 10% of its $1.5 billion Bitcoin investment. In other words, Tesla made $619 million last quarter from "extraordinary" items. Subtract that $619 million from the $438 in net earnings and they once again lost money in their operations.
In 2020, Tesla received $1.58 billion in EV tax credits, but only made $721 million total, so the company actually lost $859 million from making EVs! Clearly, that trend is persisting in the first quarter of 2021.
However, Tesla is becoming increasingly efficient - i.e., losing less - so the focus is now shifting to its new Berlin factory. If Tesla can finally make money on its EV manufacturing without incorporating its EV tax credits, then this will become the big news - that Tesla can potentially compete long term with the efficiency of the legacy auto manufacturers like Ford (F), GM and VW Group (OTCPK:VWAGY)(including Audi and Porsche).
On the first-quarter call, CEO Elon Musk and CFO Zachary Kirkhorn both said that supply chain issues, like an acute semiconductor chip shortage and a potential shortage of lithium batteries, are likely to remain a challenge this year. Musk also admitted that "There were more challenges than expected" in producing the refreshed version of the Model S Plaid. These "plaid" vehicles are supposed to use Tesla's revolutionary 4680 lithium battery, which will help reduce weight and will reportedly be part of the vehicle's structure. The plaid 4680 batteries are also supposed to have better cooling so they can be charged faster - since their EV competitors are boasting about their fast-charging battery capabilities.
The greater challenge in the EV revolution is that China and Europe are the new leaders, since sales and government EV tax incentives are much stronger there. At last week's Shanghai Motor Show, VW Group was introducing its exciting new EV models (e.g., the A6 e-tron), while Tesla was more noted for one very disgruntled owner jumping on the roof of a Tesla shouting, "Brake failure." Although Tesla said they would address the complaint, the fact of the matter is that Tesla is losing the "mojo" that it had last year.
Other protesters went to the Shanghai Motor Show to express dissatisfaction. Complicating matters is that Tesla's lost mojo is partially due to the fact the company stopped giving away free Powerwalls, Model 3s and $250,000 Roadsters to YouTubers that accumulated "referral credits." Many of these YouTubers, who are EV fans and promoters, are increasingly sponsored by Chinese EV manufacturers like XPeng (XPEV).
For Tesla to get its mojo back, the company must get ahead of the EV media cycle that is increasingly being dominated by its competitors announcing exciting new vehicles. Tesla's reputation may have also been hurt by Elon Musk bragging about buying Bitcoin and then quietly selling 10% of the $1.5 million investment for a quick $101 million profit after promoting Bitcoin. Furthermore, Elon Musk appeared on Saturday Night Live (SNL) and seems to be increasingly obsessed with fame. Hopefully, for Tesla's sake, Musk will focus on rebuilding his reputation for introducing innovative vehicles in the upcoming months.
In other news, on Wednesday, Tesla said that "we received a notice from the Environmental Protection Agency (EPA) alleging that Tesla failed to provide records demonstrating compliance with certain requirements under the applicable National Emission Standards for Hazardous Air Pollutants under the Clean Air Act of 1963." This is just the latest example of how all the positive news Tesla experienced in 2020 has largely diminished, even though the company is still posting record sales volume.
Navellier & Associates does own Tesla (TSLA), in a managed account for one client, per client request. We do not own VW Group (OTCPK:VWAGY), General Motors (GM), or Ford Motor (F). Louis Navellier does not own Tesla (TSLA), Ford Motor (F), VW Group (OTCPK:VWAGY), or General Motors (GM) personally.
Economic Statistics Remain Positive
The latest Federal Market Open Committee (OTCPK:FOMC) statement last Wednesday had no major surprises. However, I noted that the FOMC statement said that they want the U.S. economy to make "substantial further progress" towards their goal of maximum employment and 2% average inflation before starting to reduce their bond purchases (i.e., quantitative easing). What exactly "maximum employment" means is a bit uncertain, but a decline to 3.5-4% in the unemployment rate is likely the Fed's target.
I mentioned on Yahoo Finance on Wednesday that the Fed will likely allow inflation to rise to 2.4% based on the Personal Consumption Expenditure (PCE) index (which is currently running at a 2.3% annual rate, while core PCE is running at a 1.8% annual pace); but the FOMC may not want to discuss tapering before the 2022 mid-term election, since the Fed likes to go into a quiet period three months before any election.
Overall, the FOMC statement and Fed Chairman Jerome Powell's press conference just confirmed that we remain in a "Goldilocks" environment of strong economic growth and ultra-low key interest rates!
Turning to the economic dashboard, the Commerce Department announced that durable goods orders rose 0.5% ($1.4 billion) to $256.3 billion in March, well below original expectations, which were for a 2.3% surge, as supply chain disruptions continue to disrupt manufacturing. Commercial aircraft orders plunged 47% in March, while defense aircraft orders declined 20%, which caused transportation orders to decline 1.7%, despite a 5.8% increase for vehicle orders. Excluding transportation, orders for non-defense capital goods rose by a more robust 0.9% in March and +10.4% in the past 12 months. Durable goods orders have now increased in 10 of the past 11 months, and are indicative of a robust manufacturing sector as well as strong consumer spending. Despite the supply chain disruptions, new orders for durable goods rose by a robust 0.9% in March, which bodes well for durable goods orders in the upcoming months.
One reason why durable goods orders remain strong is that existing home sales and new home sales remain robust, which in turn fuels the sales of appliances, building materials and furniture. Specifically, single-family new home sales surged 20.7% in February to an annual pace of 1.02 million, which is the fastest annual sales pace in almost 15 years (since September 2006). The inventory of new homes for sale is now only 307,000, which represents a 3.6-month supply at the current annual sales pace. As a result of rising demand, lumber prices have surged more than 300% in the past year, which ads about $24,000 to the cost of a new home, so "demand push" inflation is now clearly impacting new home prices.
Last Tuesday, the Conference Board announced that its consumer confidence index soared in April to 121.7, its highest level in 14 months and up from 109 in March. The present situation component rose to 139.6 in April, up from 110.1 in March, which bodes well for continued strong consumer spending.
Trade volume soared in March, according to the Commerce Department, as exports surged 8.7% to $140 billion, while imports soared 6.8% to $ $232.6 billion. Any time both exports and imports are rising is a signal of robust global economic activity. Inventories were largely depleted in March, so both exports and imports should continue to rise in the upcoming months. The resulting trade deficit was $90.6 billion.
Although a rising trade deficit can be a drag on GDP growth, the Commerce Department announced on Thursday that its preliminary estimate for first-quarter GDP growth is an annual rate of 6.4%, which was below the economists' consensus estimate of 6.7% and the Atlanta Fed's latest estimate of 7.9%, but if that rate holds up for the full year, it will be the most rapid GDP growth rate since 1984.
The Labor Department announced on Thursday that weekly unemployment claims in the latest week declined slightly to 553,000 from a revised 556,000 in the previous week, while continuing unemployment claims rose slightly to 3.66 million, up from a revised 3.651 million the previous week. Economists were estimating weekly and continuing unemployment claims at 540,000 and 3.59 million.
Interestingly, the Commerce Department announced on Friday that household income soared 21.1% in March, due largely to the federal stimulus checks that were sent out. This was the largest monthly surge in household income ever recorded (since such records commenced in 1959). The personal savings rate surged to 27.6% in March, up from 13.9% in February. Consumer spending surged 8.1% in March and hopefully will persist in the upcoming months. Interestingly, consumers bought predominantly big-ticket items in March, since spending on services only rose 2.2%. As I have repeatedly said, it is imperative that the "velocity of money" improves in the upcoming months, so prosperity will continue to improve.
All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.
Disclaimer: Please click here for important disclosures located in the "About" section of the Navellier & Associates profile that accompany this article.
Disclosure: *Navellier may hold securities in one or more investment strategies offered to its clients.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Comments (6)
OK, $101 million in net gain.
It's important to keep realized gains and unrealized losses separate....
