What Investors Should Know About Tesla Earnings
Tesla reported third-quarter earnings that showed record gains on profits and revenues. The company reported earnings per share (adjusted) of $1.86 vs estimates of $1.59. Revenue rose to $13.76 billion estimates of $13.63 billion.
The strong results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters. Tesla’s vehicle deliveries rose 73.2% year-over-year, which was the primary driver of the company’s revenue growth for the quarter.
Higher vehicle deliveries indicate increasing demand for Tesla’s main source of revenue as well as the company’s ability to scale production.
Analysis of Tesla’s Financial Results
Tesla reported strong but mixed Q3 FY 2021 earnings results. GAAP net income for the quarter was $1.62 billion, the second time it has surpassed $1 billion. In the year-ago quarter, net income was $331 million.
Adjusted earnings per share (EPS) beat expectations, rising 144.7%% year over year. While revenue missed analyst forecasts, it rose 56.8% YOY to a new quarterly record.
The record results were driven by improved gross margins of 30.5% on its automotive business and 26.6% overall, both of which are records for at least the last five quarters.
Revenue by Segment
Automotive revenue rose to $12.06 billion, and costs of automotive revenue amounted to $8.38 billion for the quarter.
Tesla had previously disclosed deliveries of 241,300 electric vehicles and production of 237,823 vehicles during the period ending September 30, 2021. Unlike other automakers, Tesla’s sales rose during the quarter, setting a new company record, despite chip shortages and supply chain challenges weighing on the industry.
Tesla’s primary business is making electric vehicles, and it needs to continue expanding production to grow revenue and profits. Deliveries are thus used as the closest approximation of sales that Tesla reports. Tesla noted that its ability to keep its factories running at top speed has been affected by a number of supply-chain challenges, including semiconductor shortages, port congestions, and rolling blackouts.
Tesla also generated $806 million in revenue from its energy business, which combines solar and energy storage products, and $894 million in services and other revenue, which includes vehicle maintenance and repairs, auto insurance, and sales of Tesla-branded merchandise among other things.
For its energy and storage business, costs of revenue rose to the highest number in the last five quarters to $803 million during the third quarter.
The company noted in communication to shareholders that ‘a variety of challenges, including semiconductor shortages, congestion at ports and rolling blackouts, have been impacting our ability to keep factories running at full speed.”
Even with those issues, the company reiterated prior guidance that it expects to “achieve 50% average annual growth in vehicle deliveries” over a multi-year horizon. During the third quarter, Tesla recorded a $51 million impairment related to its investment in bitcoin, which is reported under “restructuring and other” expenses.
Tesla also faces an increasingly competitive electric vehicle market with Volkswagen AG becoming the top-selling all-electric vehicle maker in Europe last year. Through the first half of 2021, Tesla was the global leader in the market for plug-in electric vehicles with a market share of nearly 14.6%. Volkswagen was second with a market share of 12.5%, and General Motors Company (GM) was third with a market share of nearly 8.6%.
Should I buy Tesla shares?
Tesla shares fell less than 1% in after-hours trading following the earnings release. The stock has risen 23.69% year to date, and over the last year, shares have provided a total return of 105.2%, well above the S&P 500’s total return of 31.8%.
The current consensus among 41 polled investment analysts is to buy stock in Tesla Inc. The 35 analysts offering 12-month price forecasts for Tesla Inc have a median target of 830.00, with a high estimate of 1,591.00 and a low estimate of 67.00. The median estimate represents a -7.97% decrease from the last price of 901.84, according to CNN Business.