Earnings season: Tesla steps on the gas with earnings beat

Equities

Tesla once again posts strong quarterly earnings figures and clears some major milestones.

Tesla earnings

Tesla’s headline stats

Released yesterday after US market close, Tesla’s Q2 2021 earnings beat Wall Street expectations.

The world’s foremost electric fortunes surged this quarter. Net income for 2021’s second quarter reached $1.14bn – surpassing the $1bn mark in a quarter for the first time. It’s also a ten-fold increase against Q2 2020’s net income levels.

Revenues generated from Tesla’s core automotive business clocked in at $10.21bn. Total revenues reached $11.96bn – nearly double the $6.04bn registered a year ago.

The company broke its previous vehicle delivery records too. Deliveries, a metric akin to sales when gauging Tesla’s success, amounted to 201,250 in the quarter ending June 30th 2021.

Production volumes stood at 206,421.

While the vast bulk of its revenue stream came from vehicle sales and associated services, Telsa also made money selling its government-sourced regulatory credits.

Regulatory credits are awarded to manufacturers as an incentive to develop electric vehicles. As Tesla only manufactures EVs, it gets these for free, which it then can sell on for a massive profit to other marques that have yet to meet regulatory requirements.

Sales of regulatory credits contributed 3.5% of revenues, equating to $354m.

Servicing looks like it is becoming a major money spinner for Tesla. With more vehicles on the roads, some 121% year-on-year, Tesla has boosted its service offer. It now operates 598 stores and service centres worldwide. According to its latest reports, service and maintenance generated $951 million this quarter.

One aspect where Tesla took a hit was its Bitcoin holdings. You may recall, the automaker caused consternation earlier in the year, when it snapped up $1.5bn in BTC tokens in March. Questions were raised around the validity of this strategy: is Tesla an auto manufacturer or a crypto trader?

CEO Elon Musk is famous for his enthusiasm for cryptocurrencies. However, he and his company were instrumental in instigating one of BTC’s famous price wobbles. First Tesla announced they were going to accept Bitcoin as payment for its vehicles in May. A week later, the company reneged on this, citing environmental concerns.

A $23m impairment on the value of Tesla’s BTC holdings was noted in this quarter’s report. This was filed under a “restructuring and other” operating expense.

Tesla’s post-earnings share action

Tesla shares rose 2% in after-hours trading following the earnings release.

As of Tuesday, pre-UK lunchtime, Tesla was trading for around $648 per share.

EPS beat Wall Street estimates. Forecast at $0.98, real earnings-per-share was valued at $1.45.

Upon this Street-beating report, sentiment on Tesla is naturally very positive.

Tesla senitment indicator.

Analyst recommendations rate Tesla as a “buy”.

Tesla analyst sentiment.

Where next for Tesla?

Despite having a bumper Q2, there still remains lots of challenges for the brand.

The largest is the global shortage of chips necessary for EV production. Volume production will be limited, Musk said on a call with investors yesterday, depending on whether supply shortages can be overcome.

This year, Tesla is aiming to boost deliveries by 50%.

Despite market suggestions, Musk dismissed ideas of Tesla setting up its own chip hub. “That would take us, even moving like lightning, 12 to 18 months,” he said.

Tesla claims it is on track towards building its first Model Y models in new facotires based in Berlin, Germany and Austin, Texas. Model Y cars should start rolling off production lines in these locations by the end of 2021.

However, the launch of its commercial semi-truck programme has been delayed. This is again due to supply chain snags, specifically the availability of battery cells.

No indication was given by Tesla as to when it will start production of its futuristic Cybertruck pick up platform.

Essentially, the next months will rely on the global chip status. Rising input costs in US and European plants, caused by rising worldwide commodities prices, may put the brakes on rapid expansion as the year progresses.

Week Ahead: Covid-19 to hit sentiment, can discounters thrive?

Week Ahead

A raft of sentiment data, US goods orders figures, and earnings from discounters well-positioned to thrive during the current economic downturn will be the focus of financial markets in the week ahead. Here’s your full break-down of the top events to watch. 

German confidence heading higher? UK, NZ sentiment predicted to drop further 

There is plenty of sentiment data available this week, with the German Ifo Business Climate, GfK Consumer Sentiment surveys for Germany and the UK, the US CB Consumer Confidence report, and the latest ANZ Business Confidence survey for New Zealand in the docket. 

The mood is expected to have improved in Germany, where lockdowns were lighter to begin with and so the expected economic hit shouldn’t be so severe. Schools and small businesses have reopened, and the return to some kind of normality is expected to lift sentiment from its historic lows. 

It will be a different story in the UK, where the bulk of restrictions remain in place. A sharp rise in unemployment will also weigh on sentiment, with even workers shielded by the governments furlough scheme left uncertain about their future once the Treasury stops paying their wages. 

Meanwhile, although the New Zealand economy has reopened, the latest ANZ confidence survey is expected to show another weakening in business sentiment 

This may not truly reflect the current mood, however, as the government last week announced fiscal stimulus equal to over 20% of GDP to jump-start growth, and predicted a return to pre-Covid-19 levels of joblessness within two years. 

Flash CPI: Germany and Eurozone 

The collapse in oil prices and the continued stimulus efforts of the European Central Bank will weigh on the latest inflation figures from Germany and the Eurozone this week. 

Price growth in the Eurozone slumped from 0.7% to a four-year low of 0.3% in April, finalised data last week confirmed. The collapse in crude oil prices was largely to blame; the more stable core reading slipped to 0.9% from 1% year-on-year. Food, alcohol, and tobacco prices rose. 

While many of the Eurozone’s major economies slipped into deflation, price growth remained firmer in Germany. Another bout of data like that this week could fuel further tensions between the Eurozone’s powerhouse and its central bank, who were arguing over the legality of its asset purchasing programme. 

US durable goods orders to collapse further, unemployment to hit spending 

US durable goods orders tumbled in March. Orders plunged 14.4% on the month, with a collapse in transport orders, particularly commercial aircraft, largely responsible. 

Forecasts for April suggest a further 25% decline. Personal income and spending figures later in the week could also show another large drop. Income declined -2% on the month during March, while spending dropped a record 7.5% as people complied with stay-at-home orders. With 20 million Americans losing their jobs in April, the next set of income figures is likely to show a larger collapse. 

Japan unemployment rate, flash industrial production, retail sales 

A slew of data from Japan on Friday will give a broad view of how the economy is faring, although we already know it’s in a recession. Unemployment is expected to have climbed to 3.2% during April, from 2.5% in March. Retail is expected to continue to shrink on the month, with the rate of decline slowing from 4.5% to 3.2%. Preliminary industrial production data will show whether the 5.2% year-on-year decline recorded in March moderated last month. 

Earnings: Discounters expected to fare well on consumer stockpiling 

Discounters Costco, Dollar General, and Dollar Tree all report earnings this week. Consumers rushed to buy the essentials during Q1 and tightening budgets and surging jobless rates could help drive demand in the long run. 

Costco, however, has other business interests that may continue to feel the pain of the stalling economy and social-distancing measures; stagnation in its food courts, travel services, and optical services wings dragged comparable sales down 4.7% on the year in April, even as demand for consumer staples surged. 

Dollar Tree announced that it would bring on an additional 25,000 staff to help it cope with the increased demand in its stores and distribution centres. Earnings will take knock from the decision to suspend online sales for seven days towards the end of March, which hit revenue by almost 20% during the period. Online is where other retailers like Walmart have been able to make up for falling instore sales volumes. 

Dollar General is the clear winner in terms of stock performance, having gained 16% since the start of the year. Costco is nearly 5% higher, while Dollar Tree, which performed well during the last recession, has slumped nearly 15%. Goldman Sachs initiated the stock as a “Buy” last week.

Heads-Up on Earnings 

The following companies are set to publish their quarterly earnings reports this week:

Pre-Market 27-May Royal Bank of Canada
After-Market 27-May Autodesk – Q1 2021
After-Market 27-May Workday Inc – Q1 2021
Pre-Market 28-May Dollar Tree – Q1 2020
14.00 UTC 28-May Dollar General – Q1 2020
After-Market 28-May Salesforce – Q1 2021
After-Market 28-May Costco Wholesale Corp – Q3 2020
After-Market 28-May Dell Technologies – Q1 2021

 

Highlights on XRay this Week 

17.00 UTC 25-May Blonde Markets
15.30 UTC 26-May Weekly Gold Forecast
10.00 UTC 27-May The Marketsx Experience: Platform Walkthrough
14.45 UTC 28-May Master the Markets with Andrew Barnett
12.25 UTC  29-May US PCE: Live Market Analysis

 

Key Economic Events

Watch out for the biggest events on the economic calendar this week:

08.00 UTC 25-May German Ifo Business Climate
06.00 UTC 26-May German GfK Consumer Climate
14.00 UTC 26-May US CB Consumer Confidence
01.30 UTC 27-May Australia Construction Work Done (Q1)
01.00 UTC 28-May New Zealand ANZ Business Confidence
01.30 UTC 28-May AU Private Capital Expenditure (QoQ)
12.00 UTC 28-May Germany Preliminary CPI
12.30 UTC 28-May US Durable Goods Orders
14.30 UTC 28-May US EIA Natural Gas Storage
15.00 UTC 28-May US EIA Crude Oil Inventories
23.01 UTC 28-May UK GfK Consumer Confidence
23.30 UTC 28-May Japan Unemployment Rate, Flash Industrial Production, Retail Sales
09.00 UTC 29-May Eurozone Flash Inflation
12.30 UTC 29-May Canada GDP (Q1)
12.30 UTC 29-May US PCE, Personal Income, Personal Spending

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