Tesla on Wednesday posted record profits of $3.3 billion in the first three months of 2022, shrugging off supply chain issues, inflation-driven cost increases, and COVID-induced plant shutdowns in what was its best quarter in company history. The Elon Musk–run outfit bested analyst forecasts by wide margins, sending its stock price up 6% in midday trading Thursday.

From top to bottom, Tesla’s financial report sparkled. 

Vehicle production and delivery figures held steady, a laudable achievement given numerous manufacturing headwinds. Operating margin hit 19.2%, up from 14.7% in the previous quarter, as consumers willingly stomached price hikes and nonmanufacturing revenues jumped. Corporate debt, excluding vehicle and energy product financing, approached zero after a $1.3 billion paydown.

For Tesla, the strong quarter portends an even longer runway in the EV sector, where legacy automakers have pledged to spend hundreds of billions of dollars to transform their gas-powered fleets and VC-propelled upstarts hope to disrupt the market.

Rather than crumble under the supply chain challenges of the past two years, which largely center on semiconductors and raw manufacturing materials, Tesla has weathered those constraints via close supplier ties and extensive vertical integration. Meanwhile, the leaders of three young Tesla challengers—Rivian, Lucid, and Lordstown—continue to cut production targets owing to their inability to acquire parts.

Tesla’s supply chain advantages aren’t as stark when compared to legacy automakers, many of which have existing supplier partnerships and manufacturing facilities that will aid their grand EV conversions. But Tesla’s success now provides the company with deeper reserves that can fuel Musk’s ambitions for profit-driving innovation. 

After paying off $4.4 billion in debt over the past 12 months, Tesla should have more flexibility to invest in additional manufacturing scale and newer technology. The company, which delivered about 1 million vehicles in 2021, aims to increase production by 50% annually en route to shipping 20 million cars per year.

Musk, ever the hype man, also pumped up Tesla’s plans for self-driving vehicles, robotaxis, and its Optimus humanoid robot during Wednesday’s earnings call. Musk has projected that all three products could arrive in the next two years, though he’s known for blowing past overly ambitious targets.

“Our focus is to get to the point where robotaxis are on the road, Optimus is in use, get the economic model for that dialed in, and then evaluate the size of cash flows at that point and make decisions then as to what’s next,” Andrew Baglino, Tesla’s senior vice president of powertrain and energy engineering, said during the call.

Tesla’s big-name competition figures to quickly gain steam in the coming years. 

A Reuters analysis late last year found nearly 20 automakers have announced plans to spend $10 billion or more on EV conversion efforts. Volkswagen leads the pack, pledging about $100 billion, while Daimler, Ford, Honda, Stellantis, and General Motors have each committed multiple tens of billions of dollars.

For now, Tesla can’t quite keep up with the automotive Joneses when it comes to cash on hand and manufacturing infrastructure. With more quarters like this one, though, Elon Musk and company could stay ahead of the pack for even longer.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Money in hand. Tesla CEO Elon Musk declared in a regulatory filing Thursday that he has secured $46.5 billion in funding for his bid to acquire Twitter, Reuters reported. The disclosure follows uncertainty about whether Musk could cobble together enough equity and debt to complete an all-cash transaction, estimated to cost about $43 billion at his $54.20 per share offer. Musk said he has obtained debt commitments of $25 billion from multiple banks, on top of the $21 billion in personal equity dedicated to the purchase. Twitter’s board has not yet formally responded to Musk’s offer, though it has enacted a “poison pill” designed to halt a hostile takeover.

A swipe at Shopify. Amazon will soon allow some merchants to offer a Buy With Prime option on their own websites, enabling vendors to process transactions using the e-commerce giant’s payments and fulfillment services, Bloomberg reported Thursday. The move by Amazon aims to blunt the growth of Shopify, which provides similar services to companies. While millions of vendors sell products on Amazon’s e-commerce platform, many have turned to Shopify and similar rivals amid frustration with the company’s terms of use and fees.

Gaining some ground. HBO and HBO Max gained 3 million net subscribers in the first quarter of 2022, illustrating the fast-rising competition that contributed to Netflix’s huge stock selloff Wednesday, CNBC reported. The two brands totaled 76.8 million subscribers by the end of March, placing them fourth in the streaming wars behind Netflix, Amazon Prime, and Disney+. Analysts are closely watching subscriber counts for streaming services after Netflix reported a net loss of 200,000 subscribers to start 2022, its first Q1 decline in a decade. Shares in HBO parent company Warner Bros. Discovery—which will reportedly shut down the CNN+ streaming app, according to a Bloomberg report Thursday—fell 5% in midday trading.

Unions building steam? Employees at an Atlanta Apple store filed paperwork Wednesday to hold a unionization vote, joining an upstart labor movement targeting tech and retail companies, Bloomberg reported. The workers aim to form the first union at an Apple retail store in the U.S., following in the footsteps of the first successful unionization vote at an Amazon warehouse earlier this month. The employees would join the Communications Workers of America, an organized labor group that represents workers across multiple sectors. Employees at Apple’s Grand Central Terminal store in New York City also are collecting signatures for a union petition.

FOOD FOR THOUGHT

Licking their chops. Pretty much everyone affiliated in some way with Netflix had a rough Wednesday (chief among them: Bill Ackman, who sold his hedge fund’s entire stake in the company just three months after buying it, at a $430 million loss). But as the Wall Street Journal reported, the folks on Madison Avenue surely enjoyed the news of Netflix’s nasty quarter, which prompted the streaming giant’s executives to float the potential for a lower-priced tier with commercials. Advertisers have long coveted Netflix’s young, affluent subscriber base, which could become a prime marketing target if the streamer relents on its no-ad strategy.

From the article:

Of all the digital-marketing options available to advertisers, not many allow marketers to deliver a specific message to a specific group of people within such a large audience, said Nick Drabicky, a senior vice president and general manager of client services at January Digital, a strategic consulting and digital media firm. “So to say advertisers would be thrilled for this option is likely an understatement,” he said in an email.

Mr. Drabicky said Netflix would be particularly attractive to advertisers who don’t want to pay for traditional TV ad campaigns or are looking to reach a more targeted subset of viewers. “Netflix also has an extremely sophisticated recommendation algorithm, making the possibilities extremely appealing to advertisers,” he said.

IN CASE YOU MISSED IT

The unauthorized profile of the world’s top crypto investor, Chris Dixon, by Jessica Mathews

Elon Musk is hiring. The Boring Company just raised $675 million, and it’s on the hunt for talent, by Will Daniel

Ethereum is trying to move to a “proof-of-stake” model. If it does, a dominant DeFi platform presents a huge potential threat, by Taylor Locke

Coinbase is betting big on a social media–style NFT marketplace. Does it stand a chance against OpenSea?, by Taylor Locke

ApeCoin surges 38% on rumors that it will soon be incorporated into a major metaverse project, by Marco Quiroz-Gutierrez

BEFORE YOU GO

Feeling the pressure? Video game developer Activision Blizzard probably expected to revel in some much-needed plaudits Thursday on the news, per Axios, that two women would join its male-dominated board amid a sexual harassment scandal. But within two hours, another story broke. The Wall Street Journal, citing sources familiar with the matter, reported that Activision Blizzard CEO Bobby Kotick’s ex-girlfriend, Meta chief operating officer Sheryl Sandberg, faces allegations that she improperly intervened to stop the publication of a news article revealing a temporary restraining order against Kotick. Meta officials are reviewing whether Sandberg and Kotick coordinated to pressure the digital edition of the Daily Mail to kill the story, potentially in violation of company rules.