When Tesla reports first-quarter earnings after the bell on Wednesday, 20 April—or 4/20 as a pot-smoking Elon Musk would likely joke—the least interesting news will come from the actual figures themselves.
The electric-vehicle pioneer has been on a tear last year, growing volumes by 87% and nearly hitting the 1-million-unit sales mark even in the midst of a crippling shortage in microchips that throttled production at its rivals.
Fundamentally its business is highly resilient, with automotive gross margins (a measure of profitability) at over 29% last year, and $5 billion in surplus cash generated even after heavy investments in growth.
Following years of debate over its underlying financial health, the company seems constrained only by the number of cars it can churn out.
Results are therefore overshadowed by the controversy surrounding the Musk’s surprise $43 billion bid for Twitter, and what it means specifically for Tesla.
The biggest question facing the carmaker’s shareholders is how the world’s wealthiest human can finance the mammoth deal.
Comparatively speaking, Musk is cash poor, with the bulk of his fortune tied up in shares of Tesla.
A portion of his stake, some 88.3 million shares as of last June, is already pledged as collateral, the value of which Musk borrows against to finance his lifestyle since he doesn’t collect a paycheck.
Whether he may need to liquidate some of his unpledged holdings to fund a Twitter bid would have major implications for the direction of Tesla’s share price.
The easiest way for the carmaker to tackle those concerns head-on is for Musk to address them directly by participating in this quarter’s earnings call, which is no longer a given.
Yet Tesla itself has a host of other issues at the forefront of investor minds as the company delivered “only” 310,000 vehicles to customers in the three months through March.
While this represents a staggering 67% gain year over year, volumes flatlined over the final quarter of 2021 after demand in China softened following a decline in EV incentives that took effect in January.
Shanghai lockdowns
Initially this wasn’t a big concern, as the first quarter was expected to be the least relevant for its investment story.
Two new manufacturing plants just came online that would alleviate production bottlenecks and serve as extra insurance that Tesla would meet its 50%-plus annual volume growth target this year, which underpins its $1 trillion market cap.
That has now changed with the lockdowns at Giga Shanghai, believed to be its most efficient, lowest-cost, and highest-volume factory—exceeding its California site in Fremont.
The Chinese plant has been closed since March 28, substantially distorting operations for the second quarter and posing the risk that volumes and earnings estimates this year may be lowered due to the one-off event after Wednesday’s call.
Other answers that shareholders hope to gain from the call include any update on the third stage of his growth strategy, Master Plan Part 3, that will focus on artificial intelligence and links to other parts of his business empire, such as SpaceX.
Tesla furthermore still owes investors an update on the specifics of its planned stock split, a move designed to lower the marginal barrier to entry for retail investors that currently need to pay over $1,000 for one full share.
The announcement gave a bump in the price of the stock equivalent to the entire market value of the much larger Volkswagen Group, baffling analysts like Morgan Stanley’s Adam Jonas.
There are also concerns in particular surrounding the new plant in Germany.
According to a report that emerged this week, Gigafactory Berlin-Brandenburg may end up manufacturing only 30,000 Model Ys this year, even though it is designed to build 500,000 vehicles when operating at full capacity.
If true, this could also lead to a scaling back of expectations.
Finally, inflationary pressures are playing a bigger factor in Tesla’s operations. Prices for battery-grade lithium carbonate and lithium hydroxide, key raw materials, have been soaring of late and even prompted Musk to say he might invest directly in a lithium mine due to their “insane levels.”
As a result of the higher cost of goods, Tesla has been gradually but repeatedly hiking the price of its models bit by bit.
The reported asking price for GigaTexas’s expected entry Model Y, which features all-wheel drive, is purported to start at $59,990, pricing it out of reach for many buyers.
Further signs of stealth inflation creeping into Tesla’s business has been a controversial decision to start charging for the mobile connector cable. What was once supplied free of charge with delivery of a vehicle will now cost $200 as an option and only because Musk was forced to halve his price in an embarrassing reversal.
While Q1 results won’t prompt concerns over its fundamentals, investors will be looking for reassurance its growth story this year remains intact in the absence of new models like the Cybertruck.
