Tesla’s Earnings Show a Decline in Profit, Y-O-Y Growth in Revenue

by Sahil

25/07/2022 3 min read

Tesla’s Earnings Show a Decline in Profit

Elon Musk-owned electric vehicle company, Tesla has made the news, reporting a decline in the quarterly profit. The company saw an adjusted profit of USD 2.27 per share for the second quarter of 2022, which plummeted from USD 3.22 in the previous quarter. The gross profit dipped from USD 5460 million in the first quarter of 2022 to USD 4234 in the second quarter.

While Y-O-Y (year-on-year) growth was 47%, there was a sequential decline. The total revenues saw a similar fate. The Y-O-Y growth was 42% in total revenue, with USD 18.8 billion in the first quarter of 2022, as compared to USD 11.96 billion in that of 2021. Tesla, however, generated USD 16.9 billion in revenue which dropped from USD 18.8 billion in the first quarter.

Tesla quarter by quarter operating cash flow and free cash flow

Tesla quarter by quarter operating cash flow and free cash flow

Analysts are said to have expected revenue of USD 17.2 billion and an earning of USD 1.85 per share in the Q2 of 2022, but Testa’s report shows they have both dropped to USD 11.96 billion and USD 1.45 respectively. The reported shares record a downfall of about 40% from their peak in November 2021.

However, there was an operational margin growth of 14.6% and a positive cash flow of $621 million. The Chief Financial Officer, Zachary Kirkhorn reported that they were trying to push towards a 50% growth in deliveries this year. However, despite denying to sell Tesla’s Bitcoin, Musk had reportedly sold 75% of it for the conversion to fiat currency for cash liquidation.

Tesla quarter by quarter operating cash flow and free cash flow

Financial summary of Tesla’s revenue, gross profit, and gross margin

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What are the reasons for this plummeting in profits?

While Tesla has reportedly sold 2,54,695 electric vehicles globally in the second quarter of 2022, which was a plunge from the 3,10,048 electric vehicles sold in the first quarter, Musk claimed that June 2022 was recorded to be the highest vehicular production month in the history of Tesla’s production. However, the challenges faced by the company were not something to be taken lightly. With a rise in inflation, share prices initially rose to 4% then settled at 1.45%. Besides, challenges were faced due to limited production and shutdowns caused due to COVID in Shanghai. There was a rise in demand for batteries and assets for car parts which contributed to the descent.

While such reasons were causing a sequential decline in profits and revenue, there were positive factors that showed Y-O-Y growth in both. There was a growth in vehicle delivery throughout the year. An increased Average Selling Price (ASP) was noted with a significant increase in prices of electric cars, with some models recording a rise as high as USD 6000. It continued rapidly throughout all months of 2021 and slowed down during the early months of 2022. Other parts of the business too observed growth in profit. The stock-based compensation expense was comparatively lower.

Due to the issues in Shanghai, the per unit fixed costs rose. The cost of raw materials, logistics, commodities, and expedite followed this surge. There was a negative impact of foreign exchange on the company. Tesla also suffered Bitcoin impairment due to its instability.

Consequently, to maximize Tesla’s cash position because of uncertainty related to the Covid shutdowns in China, Musk had taken the decision of converting Bitcoin to fiat currency, and not due to the instability in the market of Bitcoin.

How are Tesla’s Competitors Performing?

Tesla’s rival Ford Motors has seen a 4.29% rise in revenue at end of the first quarter of 2021, that $134.589B, as compared to that of 2021. However, the quarterly revenue number has dropped by 4.84% as compared to the last quarter of 2021. Making a gross profit of $5.440B, a 21.51% decline in the first quarter is noted when compared with the preceding one. However, there is a 15.26% rise in profits compared to 2021, with a gross profit of $20.199B. Another leading EV company, Rivian Automotive has faced a loss in revenue in the face of geopolitical conflicts and disruption in supply chains. Its production of vehicles declined by 50% in March, producing 25,000 as compared to an expected number of 50,000. It has suffered a loss of $1.593 billion for the quarter, that is $1.77 per share, as compared to $414 million from the first quarter of 2021. Despite similar disruptions, Lucid Motors made progress in the first quarter of 2022with a revenue of $57.7 million collected from the customer deliveries of Lucid Air vehicles.

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