Tesla: The Bulls Win, for now,

Its big day and the result release were promising, with many indicators pointing to the positive end of the company’s expansion plan. However, the stock price was relatively flat after-hours.

Let’s get into the details.

Record Operating Profit

Consistent with our previous update, Tesla has reported a quality record operating profit and good bottom-line profits for the second quarter. Despite a global semiconductor shortage that had restricted EV production, not just for Tesla for other companies such as GM.

The earnings were $1.45 per share, well ahead of the estimate of $0.94 per share. In addition, sales rose to $12 billion, breaking expectations of $11.5 billion.

An operating profit of $1.3 billion exceeds our expectation of $1 billion, at least in our prior discussion. It marks the first time Tesla hit more than the billion marks, setting a record level and much higher by about $500 million than what analysts had expected.

Stock Price in Review

Since the company announced its first-quarter result on 27 April, the stock price is down by about 6%. In comparison, the Nasdaq had risen about 5% over the same period. On a Year to Date basis, Tesla is down by around 7%, looking pale compared to a gain in the S&P 500 of about 17% and Dow Jones’s 15% gain.

The after-hour gain appears to lack in momentum as investors are still internalizing how the semiconductor constraints can still hit Tesla’s production prospect.

Nonetheless, the latest earning result could provide firmer support for the stock price.

Strong EV Car Sales

The earning results were music to the bulls. First, most of the operating profits were derived from Tesla’s car business and on a lower proportion by its regulatory credits. To put into perspective, credit sales account for $354 million, which is a drop from $518 million in the 1Q2021 result.

Essentially, Telsa could earn from selling credits by producing more than its fair share of zero-emission cars. The bulls and bears have been fighting for the longest time on how such credit sales can last, and this set of results hand the bulls a strong case for their sentiments.

The better-than-expected earnings result coupled with lower credit sales signals a robust underlying car business as Tesla moves towards a more structural and mature operational capability in scaling up its production globally.

Robust Margins and Cashflow

This can be seen in its automotive gross margins that exclude any credits at 25.8%. The profitability is sound. Cash flow is healthy with $619 million registered, up from the $293 million in the first quarter. It marks the 5th consecutive quarter that Tesla achieved a positive free cash flow.

A slight impairment of $23 million accounts for Bitcoin loss compared to a gain of $101 million. Their Bitcoin holdings stood at $1.33 billion at the end of the first quarter, and investors will have to wait for the subsequent quarterly regulatory filing to observe any changes in Tesla’s bitcoin holdings.

Overall, it is a splendid day for Tesla and we shall see the next big move!