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Tesla profits with Bitcoin on the balance sheets

Tesla reported first quarter revenues of $10.4bn, marginally ahead of market expectations and up 74% year-on-year. That was driven by a 109% increase in deliveries, as the group ramped up production from its new Chinese factory. This was partially offset by an 83% decline in higher priced Model S/X vehicles, as Tesla shifted its factories to production of newer models.

Despite the shift in sales, operating margins of 5.7% were up on both the same period last year (4.7%) and the preceding quarter (5.4%). That’s despite a 13% decline in average sales price and reflects lower average manufacturing costs. The combination of increased revenue and higher margins meant earnings per share rose 1850% to $0.39, although that remains some way behind analyst expectations.

Automotive revenues in the quarter rose 75% to $9.0bn, with automotive gross margin of 26.5% up nearly a percentage point year-on-year. Revenue from automotive credits was $518m, excluding which automotive gross margins would have been 22%.

Capital expenditure rose 196% year-on-year to $1.3bn, as the group continued to ramp up Model Y production, develop its new German Gigafactory and the changeover to newer Model X and Model S variants. Together with a $1.2bn bitcoin purchase made during the quarter, that meant free cash flow in the quarter fell to $293m, down from $1.9bn last quarter, although improved year-on-year.

Net cash came in at $6.3bn, down from $7.7bn a quarter earlier – reflecting the purchase of bitcoin which is not treated as a cash-like asset for accounting purposes.

The group has not updated its long-term guidance, although delivery of Tesla Semis are expected in 2021.

The share price fell 1.7% in aftermarket trading.

Nicholas Hyett, Equity Analyst at Hargreaves Lansdown:

“There’s just so much going on in these results. First there’s the remarkable fact that Tesla’s managed to deliver earnings growth in the thousands of percent, despite not producing a single Model X or Model S – the higher priced models that were once its bread and butter. Increased volumes of the lower cost Model 3 and Model Y have more than made up for the shortfall, with lower average manufacturing costs boosting margins and turbo-charging profits.

Less positively, there’s the complete lack of guidance around near-term production headwinds. A global shortage of computer chips is expected to limit production from all manufacturers in the immediate future, and Tesla won’t be exempt. Given the ongoing importance of its production ramp up, it may even be more heavily impacted.

Finally – and in it’s incredible that this isn’t the biggest thing going on in these numbers – there’s the first appearance of Bitcoin on a major industrial company’s balance sheet. Tesla has made some $101m on its investment so far, which is all well and good, but huge gains and losses aren’t really what corporate treasuries are all about. Investors could well argue that if they wanted to have exposure to Bitcoin they would have bought some themselves and don’t need Tesla to do it for them.

Still Tesla has never played by the rules – so far that hasn’t stopped it being a winner.”

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