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28 July 2021

Record Production Drives Up Tesla Earnings

Tesla reported its second-quarter earnings yesterday and outperformed all analysts’ expectations with record production of slightly over 200,000 vehicle deliveries. The company has continuously increased its quarter-on-quarter sales, mainly comprising of Models 3 and Y with 98% of total combined car production. The company reported an increase in global demand for electric vehicles (EVs) and the opening of its new Gigafactory in Texas.

Starting with a limited operation, Tesla is gearing itself to reach its delivery obligations at a fast pace, while simultaneously decreasing the cost of production. However, multiple delays due to red tape and environmental violations, alongside the limited availability of microchips, have hampered its ability to reach potential manufacturing capabilities, hence affecting the growth rate.

The company is now looking to broaden its supply chain to make overseas factories more efficient by attempting to source parts locally rather than relying solely on the US. With regards to the Cybertruck it was reported that production of the company’s newest vehicle will only start after Model Y begins production in Austin, Texas.

In addition, the company noted the importance of the charging network and planned on expanding this at a much faster rate than the car sales, which will likely prove to be challenging as both products use the same chips. Therefore, there is an inclination to divert chips from Powerwalls to cars, prioritising car production.

Overall, Tesla had a good quarter with increases in its production, gross margin, and operational efficiency. There are obstacles which the company needs to overcome, although these are faced by all in the industry at present and, as Tesla continues to improve its profitability and expand its car production, it will need to start focusing on other elements of EVs such as power stations. The company has a bright future of earnings potential and once it overcomes the hurdles of chip shortages and a sluggish Gigafactory opening in Germany, it will be able to achieve a more consistent growth of vehicle deliveries. 

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Record Production Drives Up Tesla Earnings
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