Tesla, yet again, crashed its numbers. From delivery numbers to top and bottom numbers, the Q3 earnings report was nothing short of impressive. The blowout earnings have gone ahead to supercharge Tesla’s share price to all-time highs.
Additionally, Tesla got an upgrade from S&P Global that raises their credit rating from BB to BB+. Even though it still falls in the ‘Speculative Grade’ category, the upgrade moves Tesla one step up the scales towards Investment Grade. Here’s all you need to know about Tesla’s Q3 2021 earnings report.
In This Article
Vehicle Delivery numbers
In a report released early this month, Tesla announced that it delivered 241,300 vehicles in Q3, beating the consensus estimate of 222,700. The deliveries set a new record for quarterly deliveries and reflect a yearly growth of 73%. The year-to-date delivery numbers now stand at 627,500.
Revenue
Revenues increased to a record high of $13.76 billion, beating the consensus estimate of $13.16. The number represents a 57% growth year over year.
Margins
As Tesla announced its Q3 earnings on October 20, we expected a stellar report. However, no one imagined that the company would attain an automotive gross margin of 30.5% (28.8%, excluding EV credits).
Furthermore, the company achieved an operating margin of 14.6%, exceeding its guidance in the low-teens.
More impressively, Tesla achieved this despite an ASP(Average Selling Price) decrease of 6% year over year due to increased gravitation towards lower-priced vehicles.
Profitability
Tesla reported a net income of $1.618 billion on a GAAP basis and $2.09 billion on a non-GAAP basis. This resulted in an EPS(Earnings Per Share) of 1.44 on a GAAP basis and $1.86 non-GAAP.
Biggest Takeaways
- In Q3, Tesla saw continued supply chain challenges. However, the company has proven that it can handle chip supply issues better than everyone else. Rather than buying black box chips, Tesla has developed its own software that allows them to switch between chip suppliers quickly. This is flexibility other automakers do not possess. This gives Tesla competitive advantage. Additionally, Tesla seems to have planned for an oversupply as Giga Texas and Giga Berlin were scheduled to begin production earlier in the summer.
- Tesla’s manufacturing efficiency is on a new level. This is evidenced by the spectacular automotive gross margin and operating margin that the company achieved in Q3. Elon Musk has been quoted saying that manufacturing efficiency would be one of Tesla’s most significant long-term competitive advantages. Low battery costs, excellent engineering, and high automation have contributed to the company’s efficiency.
- One of the headwinds that Tesla had in Q3 was the price increases in Q2. The price increases that we saw in Q2 were not visible in Q2 numbers due to the order backlog and lag in delivery. So on Model 3 and Model Y, the price increases were an average of $2000. Nonetheless, the ASP in Q3 ended up 6% lower on a year-over-year basis due to increased demand for more affordable vehicles. But as we mentioned earlier, the automotive gross margin ended up at its highest.
Future Outlook
As we approach the final quarter of 2021, Tesla continues to face supply chain and transportation issues. Nonetheless, the company has vowed to “run their production lines as close to full capacity as conditions allow.” Here are some developments to look out for:
- Tesla’s AI technology and FSD (Full Self Driving) software will become its biggest competitive advantage. During AI day, Tesla presented its end-to-end vision on full autonomy and unveiled its next-generation neural network training chip and humanoid robot. In addition, a slow and smooth rollout of the FSD beta software for testing by safe Tesla drivers has already begun.
- Giga-Berlin and Giga-Texas are progressing as planned, according to Tesla’s Q3 earnings report. The buildout of the two factories should be complete by early 2022 and operating at full capacity by the end of 2022. During the Gigafactory Berlin-Brandenburg County Fair, Tesla revealed that the factory is able to manufacture one car body every 45 seconds. It’s, therefore, safe to assume that the factory has a capacity of over half a million vehicles annually.
- Giga Shanghai is a highly profitable export hub. The most profitable cars for Tesla are those made in China for export to western countries. These vehicles are produced cheaply and sold at a high price in markets like Europe. So even though Chinese domestic demand seems to have softened, this shouldn’t be a huge concern for Tesla.
- Opening up the supercharger network will be a great source of revenue. According to Tesla, the revenue opportunity from opening up the supercharger network is more relevant than losing the exclusivity of the supercharging. Furthermore, utilization rates in Europe are low, and it would be financially beneficial to open up the network.
Conclusion: Buy?
So should you buy Tesla stock?
Personally, I’m waiting for the bull run to take its course.
Once the share price settles, it might be possible to scoop some shares at a price below $900.
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Disclaimer: None of this is meant to be construed as financial advice, it’s for educational purposes only. Links may include affiliate referrals and I may receive compensation from partnering websites. The content is accurate as of the posting date but may not be accurate in the future.
