Tesla profit tops target; Musk sees no demand problem

By Hyunjoo Jin and Nivedita Balu

(Reuters) – Tesla Inc on Wednesday reported a higher-than-expected quarterly profit as a string of price increases on its best-selling electric vehicles helped offset production challenges caused by COVID-19 lockdowns in China.

Chief Executive Elon Musk said he expects inflation will begin to ease by the end of the year, and he told a conference call that Tesla does not have a demand problem.

He dismissed the idea that global economic problems were hurting interest in Tesla, despite vehicle prices’ rising to what he called “embarrassing levels.” The U.S. price of Tesla’s Model Y long-range version, now $65,990, is up more than 30% since the start of 2021.

The company promised a “record-breaking second half” to the year and reiterated its goal of 50% average annual growth in vehicle deliveries over a multi-year horizon, but did not give specific targets for 2022 deliveries.

Shares of Tesla were up about 1% in after-hours trade. The shares are down about 40% from their peak in November.

Tesla’s China factory ended the second quarter with a record monthly production level. Musk said new factories in Berlin and Texas aimed to produce 5,000 cars a week by the end of the year, adding that Berlin produced 1,000 cars a week in June.

Musk previously had said the new factories were “gigantic money furnaces” and that he had “a super bad feeling about the economy.”

“We are prepared for near-term margin headwinds due to (new) challenges with ramping new production, particularly in Berlin,” Morgan Stanley said in a report after Tesla’s earnings announcement.

Executives acknowledged some continuing tightness in supplies of older-generation microchips, but said there were no major problems in supplies of chips and batteries barring unforeseen COVID-related shutdowns.

The EV maker posted an adjusted profit of $2.27 per share for the quarter versus analysts’ consensus estimates of $1.81.

Its automotive gross margin fell to 27.9%, down from a year earlier and the preceding quarter, amid inflationary pressure.

“Tesla’s solid quarter is the latest sign that it has done an outstanding job navigating through global supply chain and logistics challenges, weathering the storm better than most legacy automakers,” said Jesse Cohen, senior analyst at Investing.com

BITCOIN TO CASH

Tesla said it has converted approximately 75% of its bitcoin purchases into fiat currency, which added $936 million of cash to its balance sheet. Musk on the conference call said the sale was made to increase liquidity when Tesla was uncertain about how long the COVID-19 lockdown in China would continue. Tesla has not sold any of its holdings of the Dogecoin cryptocurrency.

“This should be not taken as some verdict on bitcoin,” he said, adding that Tesla is open to increasing its cryptocurrency holdings in the future.

Musk had said in May last year that Tesla would not sell its bitcoin.

“The bitcoin losses point out an important part of the Tesla investment case – its eccentric owner. While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions,” said Laura Hoy, analyst at Hargreaves Lansdown.

Total revenue fell to $16.93 billion in the second quarter from $18.76 billion a quarter earlier, ending Tesla’s streak of posting record revenue in recent quarters.

Analysts were expecting revenue of $17.10 billion, according to IBES data from Refinitiv.

(Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru; Editing by Anil D’Silva, Peter Henderson, Matthew Lewis and Leslie Adler)