On Wednesday, Tesla reported another quarter of spectacular earnings growth, but shares fell as investors worried about the long-term viability of electric vehicle demand, CEO Elon Musk’s complicated Twitter transaction, and other issues.
Profits at an electric vehicle (EV) maker more than doubled to $3.3 billion in the third quarter as auto deliveries increased. However, shares dipped in after-hours trading when the company reported sales of $21.5 billion, a 56 percent increase over the previous year but $500 million less than analyst estimates.
Bottlenecks in the battery supply chain were recognized as a barrier to EV growth, while logistical insecurity was identified as an “increasing” challenge.
Elon Musk noted during an earnings call, “Knock on wood, it appears we’ll have a great end-of-year. The factories are operational, and we’re responding to every call.”.
Tesla said earlier this month that deliveries and production increased dramatically in the third quarter after dipping in the previous period due to a coronavirus-related manufacturing closure at the company’s Shanghai factory.
Analysts believe that 1.4 million vehicles will be delivered in 2022, despite the fact that the automaker has avoided setting explicit yearly delivery targets.
According to Chief Financial Officer Zach Kirkhorn on the call, Tesla is on schedule to increase production by 50% this year but may fall short of that target when it comes to getting cars to customers. Tesla is attempting to smooth out a “crazy delivery wave” at the end of each quarter, Elon Musk told analysts.
“There weren’t enough boats, trains, or car carriers to support the wave correctly because it became too enormous,” Elon Musk added.
Tesla analysts forecast a solid fourth quarter with a restored Shanghai facility and the ramp-up of operations in Texas and Germany. Covid-19, on the other hand, is a wild card due to China’s continued zero-tolerance attitude toward virus eradication.
Another concern is whether Elon Musk’s company would be immune to macroeconomic concerns, especially inflation. The most affordable Tesla model, the Model 3, is now priced at around $48,500. With US inflation showing no signs of abating, many are skeptical that demand for pricey vehicles would remain high.
Twitter deal
Tesla shares have dropped more than 16 percent since September 30, shortly before the company disclosed its third-quarter delivery figures and before Elon Musk’s relaunch of his attempt to acquire Twitter and avoid a trial in which the company was suing him for breach of contract on October 4.
A Delaware judge recently postponed litigation between the parties to allow time for the $44 billion deal to be finalized. If no agreement is reached by October 28, the trial may be rescheduled for November.
“I’m thrilled about the Twitter scenario,” Elon Musk said during the earnings call. “I believe it’s an asset that has sat dormant for a long time but has incredible potential, albeit obviously myself and the other investors are currently overpaying for Twitter.”
Some experts believe the drop in Tesla shares, which came during a period when the S&P 500 was climbing, symbolizes Elon Musk’s potential sale of more Tesla shares to fund the acquisition of the social media startup.
“Despite Elon Musk’s Twitter antics, Tesla has been laser-focused on identifying and countering disruptive patterns in the automotive industry,” GlobalData analyst Daniel Clarke said. “As a result, it appears to be one step ahead of the competition.”
However, the analyst warned that Tesla’s reliance on the Chinese market might be a significant “bump in the road” as geopolitical rivalry with the US intensifies and Chinese electric car maker BYD approaches in its “back view mirror.”
Elon Musk on China
Despite Elon Musk’s claims that the company may buy back billions of dollars in stock, Tesla shares slid more than 6% to $208.16 in after-hours trade. According to Elon Musk, the founder of Tesla Inc., China is experiencing a slump comparable to a recession as a result of a housing market drop that has lasted more than a year.
“China is in a type of recession,” Elon Musk, the CEO of Tesla, said during a third-quarter earnings call in the United States on Wednesday. He was responding to a question on recent order intake trends, namely in China, where Tesla has a substantial manufacturing footprint.
Meanwhile, Europe is in recession owing to energy shortages, but the US is doing fine, according to Elon Musk, who believes that while the Fed is raising interest rates “more than they should,” they will “eventually comprehend it” and decrease them again.
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