Global chip shortage casting shadow over Tesla's upbeat earnings report

Tesla Inc reported its second-quarter earnings on Monday after the market closed, with record operating margin and profits. The encouraging income statement was enough to send the share price higher, but constraint in production due to the global chip shortage is worrying the investors.

The shares of Tesla are down more than 3% to $637.45 compared to the previous close, at the press time.

During the analysts’ call, CFO Zach Kirkhorn said the company is in a strong demand position, while CEO Elon Musk mentioned that the semiconductors are still a limiting factor in production, which might impact when Cybertruck arrives in customer driveways.

The electric car maker is scheduled to manufacture Model Y crossovers and the Cybertruck in its new Texas facility by the end of the year. However, ramping Model Y production will take precedence.

Although Tesla’s total production and the total delivery number has increased 151% and 121%, respectively, compared to the same quarter of the previous year, the company reported it has only nine days of global vehicle inventory amid the strong demand for Model 3 and Model Y and shortage of semiconductors.

The electric vehicle maker said it had a profit of $1.45 per share from $11.96 billion revenue, beating the analysts’ estimate of 94 cents profit per share from $11.5 billion in sales.

The quarterly revenue nearly doubled year-over-year, bolstered by the strong sales of Model 3 and Model Y.

The operating profit came in at $1.31 billion, a new quarterly record, which grew 11% year-over-year and almost $500 million more than the Wall Street expectation.

Tesla is down about 13% since the company reported first-quarter earnings on April 27. The Nasdaq Composite Index, for comparison, has gained about 5% over the same period.

Year to date, Tesla fell more than 11%, while the S&P 500 and Dow Jones Industrial Average gained about 19% and 16%, respectively.

For the quarter ended in June, Tesla’s operating profit appears to be driven by the underlying profitability of its car business and not by regulatory credits, as the company said its credit sales fell more than 31% to $354 million from the previous quarter.

For a long time, Tesla has been earning by selling regulatory credits to other automakers by manufacturing more than its share of zero-emission vehicles (ZEVs).

Tesla investors have been discussing how long credit sales will last as other automakers are also in the race to produce electric vehicles and whether to omit them out of reported results or not to get a better sense of long-term profitability.

The electric vehicle maker reported quarterly automotive gross profit margins of 25.8%, excluding credit sales, up from 18.7% year-over-year, indicating the vehicle business is doing better.

The Palo Alto-based company also recorded the fifth consecutive quarter of positive free cash flow at $619 million, up from $293 million in the first quarter.

Along with the earnings release, Tesla said it recorded a Bitcoin-related impairment of $23 million, compared to a gain of $101 million in the previous quarter. The Bitcoin holdings were $1.33 billion at the end of the first quarter.

Picture Credit: Electrek