Tesla Posts Record Earnings at Start of Turbulent Year
Electric-vehicle pioneer faces safety investigations and mounting competition.
5 min
Tesla Inc. posted a record quarterly profit despite supply disruptions, fueled by rising deliveries and increasingly broad-based demand for electric vehicles.
The Silicon Valley car maker has enjoyed booming sales, driven by both its popular Model Y compact sport-utility vehicle and sustained demand in China. The company also has benefited from the wider embrace of plug-in cars as governments across the world push to phase out gasoline-powered vehicles, in some cases through subsidies.
“We’ve seen a real shift in customer perception of electric vehicles, and our demand is the best we’ve ever seen,” Chief Executive Elon Musk said Monday on an investor call.
Tesla on Monday said revenue in the first quarter jumped around 74% from the same period a year earlier to US$10.4 billion. The company generated a US$438 million net profit, up from $16 million a year ago. Wall Street on average expected the company to report sales of about $10.5 billion and net income of around $509 million for the January through March period, according to analysts surveyed by FactSet.
Tesla said it delivered 184,877 vehicles in the first three months of the year, more than double the number during the same period a year earlier. The company, which delivered nearly half a million vehicles in 2020, reaffirmed it expects that figure to rise more than 50% this year.
The company’s strong financial start to the year comes as it faces challenges on other fronts. Federal auto-safety officials are investigating the fatal fiery crash of a Model S sedan earlier this month in Texas. Neither of the victims was found in the driver’s seat, local officials have said. The National Highway Traffic Safety Administration’s probe of the wreck is one of more than two dozen investigations of crashes involving Tesla vehicles.
The crash left questions about whether or how the vehicle could have been operating without anyone in the driver’s seat.
A Tesla executive said the company was working with local and federal authorities to investigate what happened.
The car’s steering wheel, he said on the call, was found to be deformed, “leading to the likelihood that someone was in the driver’s seat at the time of the crash.” All the seat belts, post crash, were found to be unbuckled, he said. Tesla wasn’t able to recover data from the car’s memory device.
Tesla conducted a study along with authorities in which the company tried to replicate the likely crash scenario, the executive said. The company said that a driver assistance feature that helps with steering didn’t engage in the test, while another feature, adaptive cruise control, only activated when a driver was buckled in and traveling at above 5 miles per hour.
Mark Herman, the constable whose precinct the crash happened in, declined to comment on Tesla’s statement that someone likely was in the driver’s seat at the time of the crash, saying that the incident remained under investigation.
Tesla has also faced parts shortages that led the company to briefly shut down its Fremont, Calif., factory in February. Rivals such as General Motors Co., Ford Motor Co. and Volkswagen AG have had to idle some production capacity because of a global semiconductor shortage.
“We were able to navigate through global chip-supply shortage issues in part by pivoting extremely quickly to new microcontrollers,” the company said in a note to shareholders, adding that it also was devising new software for chips made by new suppliers.
Mr. Musk said the past quarter “had some of the most difficult supply chain challenges that we’ve ever experienced.” Those go beyond computer chips, he said. China production was held back because key engineers couldn’t travel there because of Covid-19 related quarantine restrictions, he said. Some of the effects are likely to last in the current and following quarter, he said.
Tesla said it had successfully lowered the cost of making cars, helping offset a decline in the average price of its vehicles.
The company’s bottom line also benefited from several factors not directly linked to car sales. Its financial results have been aided by the sale of regulatory credits to rival auto makers that need them to comply with emissions-related rules. Such credits brought in $518 million in the most recent quarter, up from $354 million during the year-earlier period. Tesla has previously said it doesn’t expect such sales to be a material part of its business.
The company also said it saw a positive earnings effect from the sale of bitcoin in the period. Tesla bought $1.5 billion worth of the cryptocurrency in the first quarter and sold 10% of that, Chief Financial Officer Zach Kirkhorn said. The company is now accepting bitcoin as payment for products sold in the U.S.
Mr. Kirkhorn said the company opted to invest in bitcoin when it was looking for a place to store cash it didn’t immediately need as a way to preserve liquidity while also earning a return. “It is our intent to hold what we have long-term and continue to accumulate bitcoin from transactions from our customers as they purchase vehicles,” he said on the investor call.
Tesla’s success in popularizing electric vehicles transformed the company into the world’s most valuable car maker. Its success also spurred legacy car makers and startups alike to develop competing models, some of which are showing early signs of eroding Tesla’s market share.
In the U.S., for example, Tesla vehicles accounted for roughly 70% of the all-electric vehicles sold in the first quarter, according to the research firm Cox Automotive Inc. That is down from about 82% during the same period a year earlier.
Tesla’s stock soared more than eightfold last year. It is up roughly 4.5% in 2021 after advancing 1.2% on Monday ahead of results. The stock retreated more than 2% in after-hours trading.
Global demand for electric vehicles continues to increase, though, and Tesla is adding production capacity to keep pace. The company said it remains on track to begin producing vehicles this year at its new car plants near Austin, Texas, and outside Berlin, its first in Europe. Tesla has expanded capacity at its first overseas plant in Shanghai and began delivering China-made Model Y vehicles this year after kicking off with the Model 3 sedan in 2019.
China has been a growth engine for Tesla, helping to lift the company to its first full-year profit last year. But the company has hit a rough patch in the market recently. Chinese authorities summoned Tesla in February over consumer quality complaints. The government also restricted the use of Tesla vehicles by military personnel as well as employees at key state-owned companies over data-security concerns.
Earlier this month, a single protester with a disputed claim about the safety of Tesla’s vehicles drew widespread attention across the Chinese internet, which is closely controlled by the government.
Tesla has apologized for its treatment of some customers in China and said it would do better. Mr. Musk said last month that Tesla would be shut down if it used its vehicles to spy, which he said was “a very strong incentive for us to be very confidential.”
Tesla also reaffirmed that it expects to deliver its first semitrailer trucks to customers in 2021, two years after initially planned. Mr. Musk said in January that the company didn’t have enough battery cells to go into production with the vehicle.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: April 26, 2021
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Food prices continue to rise at a rapid pace, surprising central banks and pressuring debt-laden governments
4 min
LONDON—Fresh out of an energy crisis, Europeans are facing a food-price explosion that is changing diets and forcing consumers across the region to tighten their belts—literally.
This is happening even though inflation as a whole is falling thanks to lower energy prices, presenting a new policy challenge for governments that deployed billions in aid last year to keep businesses and households afloat through the worst energy crisis in decades.
New data on Wednesday showed inflation in the U.K. fell sharply in April as energy prices cooled, following a similar pattern around Europe and in the U.S. But food prices were 19.3% higher than a year earlier.
The continued surge in food prices has caught central bankers off guard and pressured governments that are still reeling from the cost of last year’s emergency support to come to the rescue. And it is pressuring household budgets that are also under strain from rising borrowing costs.
In France, households have cut their food purchases by more than 10% since the invasion of Ukraine, while their purchases of energy have fallen by 4.8%.
In Germany, sales of food fell 1.1% in March from the previous month, and were down 10.3% from a year earlier, the largest drop since records began in 1994. According to the Federal Information Centre for Agriculture, meat consumption was lower in 2022 than at any time since records began in 1989, although it said that might partly reflect a continuing shift toward more plant-based diets.
Food retailers’ profit margins have contracted because they can’t pass on the entire price increases from their suppliers to their customers. Markus Mosa, chief executive of the Edeka supermarket chain, told German media that the company had stopped ordering products from several large suppliers because of rocketing prices.
A survey by the U.K.’s statistics agency earlier this month found that almost three-fifths of the poorest 20% of households were cutting back on food purchases.
“This is an access problem,” said Ludovic Subran, chief economist at insurer Allianz, who previously worked at the United Nations World Food Program. “Total food production has not plummeted. This is an entitlement crisis.”
Food accounts for a much larger share of consumer spending than energy, so a smaller rise in prices has a greater impact on budgets. The U.K.’s Resolution Foundation estimates that by the summer, the cumulative rise in food bills since 2020 will have amounted to 28 billion pounds, equivalent to $34.76 billion, outstripping the rise in energy bills, estimated at £25 billion.
“The cost of living crisis isn’t ending, it is just entering a new phase,” Torsten Bell, the research group’s chief executive, wrote in a recent report.
Food isn’t the only driver of inflation. In the U.K., the core rate of inflation—which excludes food and energy—rose to 6.8% in April from 6.2% in March, its highest level since 1992. Core inflation was close to its record high in the eurozone during the same month.
Still, Bank of England Gov. Andrew Bailey told lawmakers Tuesday that food prices now constitute a “fourth shock” to inflation after the bottlenecks that jammed supply chains during the Covid-19 pandemic, the rise in energy prices that accompanied Russia’s invasion of Ukraine, and surprisingly tight labor markets.
Europe’s governments spent heavily on supporting households as energy prices soared. Now they have less room to borrow given the surge in debt since the pandemic struck in 2020.
Some governments—including those of Italy, Spain and Portugal—have cut sales taxes on food products to ease the burden on consumers. Others are leaning on food retailers to keep their prices in check. In March, the French government negotiated an agreement with leading retailers to refrain from price rises if it is possible to do so.
Retailers have also come under scrutiny in Ireland and a number of other European countries. In the U.K., lawmakers have launched an investigation into the entire food supply chain “from farm to fork.”
“Yesterday I had the food producers into Downing Street, and we’ve also been talking to the supermarkets, to the farmers, looking at every element of the supply chain and what we can do to pass on some of the reduction in costs that are coming through to consumers as fast as possible,” U.K. Treasury Chief Jeremy Hunt said during The Wall Street Journal’s CEO Council Summit in London.
The government’s Competition and Markets Authority last week said it would take a closer look at retailers.
“Given ongoing concerns about high prices, we are stepping up our work in the grocery sector to help ensure competition is working well,” said Sarah Cardell, who heads the CMA.
Some economists expect that added scrutiny to yield concrete results, assuming retailers won’t want to tarnish their image and will lean on their suppliers to keep prices down.
“With supermarkets now more heavily under the political spotlight, we think it more likely that price momentum in the food basket slows,” said Sanjay Raja, an economist at Deutsche Bank.
It isn’t entirely clear why food prices have risen so fast for so long. In world commodity markets, which set the prices received by farmers, food prices have been falling since April 2022. But raw commodity costs are just one part of the final price. Consumers are also paying for processing, packaging, transport and distribution, and the size of the gap between the farm and the dining table is unusually wide.
The BOE’s Bailey thinks one reason for the bank having misjudged food prices is that food producers entered into longer-term but relatively expensive contracts with fertilizer, energy and other suppliers around the time of Russia’s invasion of Ukraine in their eagerness to guarantee availability at a time of uncertainty.
But as the pressures being placed on retailers suggest, some policy makers suspect that an increase in profit margins may also have played a role. Speaking to lawmakers, Bailey was wary of placing any blame on food suppliers.
“It’s a story about rebuilding margins that were squeezed in the early part of last year,” he said.
Sydney’s prestige market is looking up, here’s three of the best on the market right now.
Rocket, the parent of Quicken Loans, has surged 28% this week.
