Tesla Announces Lower Than Expected Profit Drop On Price Hikes | Business and Economics News

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Tesla Inc reported a weaker-than-expected quarterly profit decline as a series of price increases on its electric vehicles (EVs) helped offset production issues caused by COVID-19 lockdowns in China.

Chief Financial Officer Zachary Kirkhorn said Wednesday that Tesla is still striving to achieve 50% growth in shipments this year, adding that while the goal has become more difficult, “it remains possible with strong execution.”

Chief Executive Elon Musk said he expects inflation to start falling by the end of 2022 and most commodity prices to stabilize.

Tesla doesn’t have a demand problem but a production problem, Musk said on a conference call. He dismissed the idea that global economic problems were hurting interest in Tesla, despite vehicle prices rising to what he called “embarrassing levels”.

The US price of the long-range version of Tesla’s Model Y, now at $65,990, has risen more than 30% since the start of 2021.

Tesla shares rose about 1% in after-hours trading. Shares are down about 40% from their November peak.

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

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

Morgan Stanley analysts said in a report after Tesla’s earnings announcement that they see “near-term margin headwinds due to (new) challenges from ramping up new production, especially in Berlin”.

Tesla executives acknowledged some lingering strain in the supply of older-generation chips, but said there were no significant issues in the supply of chips and batteries, barring unplanned shutdowns related to the COVID.

The electric-vehicle maker posted adjusted earnings of $2.27 per share for the quarter, down from consensus analyst estimates of $1.81. This is down from $3.22 in the prior quarter.

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

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

Analysts had expected revenue of $17.10 billion, according to IBES data from Refinitiv.

bitcoin to cash out

Tesla said it converted about 75% of its Bitcoin purchases into fiat currency, which added $936 million in cash to its balance sheet.

Musk said the sale was made to increase liquidity as Tesla was unsure how long China’s COVID lockdown would last. Tesla has not sold any of its Dogecoin cryptocurrency holdings.

“This shouldn’t be taken as a verdict on Bitcoin,” he said, adding that Tesla was open to increasing its cryptocurrency holdings in the future.

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

“Bitcoin’s losses underscore an important part of Tesla’s 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 Hargreaves Lansdown analyst Laura Hoy.

Musk has become a huge cryptocurrency influencer. He tweeted favorably about Dogecoin as an alternative currency and posted photos of his dog Floki, who, like the Dogecoin mascot, is a Shiba Inu. When Tesla threw a big party for its new factory in Austin, Texas in April, a drone show featured an image of Dogecoin.

Musk’s adoption of Bitcoin had helped serve as a catalyst for the digital currency after Tesla briefly accepted the token for purchases, but he later suspended the payment option citing environmental concerns about its operating processes mining. The further pullback marks a hawkish move by one of the crypto sector’s most significant bulls during what has been dubbed the “crypto winter.”

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