Tesla crushes the competition – Here’s how
FFirst-quarter results are in, and perhaps one of Wall Street’s most-analyzed companies is off to an electric start. Electric vehicle manufacturer You’re here (NASDAQ: TSLA) beat estimates across the board, posting impressive numbers in revenue, margins and cash flow.
It would be remiss to say that Tesla doesn’t have a long, arduous road ahead in the hyper-competitive electric vehicle market. But investors had several reasons to be optimistic about the future of this Cathie Wood favorite. Let’s take a look at the company’s first quarter financial results and analyze what the future holds.
cash is king
Tesla reported total revenue of $18.8 billion in the first quarter of 2022, representing 81% year-over-year growth. Perhaps the numbers most anticipated by analysts and Wall Street investors were margins attributable to the company’s auto segment, as well as earnings per share. The company’s total revenue from automobiles was $16.9 billion, an 87% year-over-year growth. When analyzing Tesla, it is important to note that the company generates a small fraction of revenue from the sale of regulatory credits. Since Tesla manufactures zero-emission vehicles, the company receives credits from the government. Subsequently, Tesla resells these credits to other automakers. During the first quarter of 2022, Tesla reported $679 million in revenue from regulatory credits.
Although regulatory credits contribute an insignificant percentage of overall revenue, it is important to include these costs when analyzing gross margins. Tesla reports automotive gross margin as the difference between total automotive revenue and the cost of goods to build and develop those vehicles. However, Wall Street analysts tend to exclude regulatory credits of this analysis to obtain gross margin estimates. Indeed, the sale of regulatory credits can vary considerably each quarter. By excluding this figure, investors are able to get a better picture of Tesla’s true margin profile. Excluding the contribution of regulatory credits to revenue, Tesla’s automotive gross margin would have been 30%. By comparison, when accounting for regulatory credits, the company reported gross margins of 22% in its automotive segment during the same period last year.
Tesla’s significant margin expansion is particularly notable when looking at the company’s earnings per share and cash flow. Tesla reported earnings per share of $2.86 in the first quarter of 2022, an increase of more than 600% from the first quarter of 2021. Additionally, cash flow from operations was $4 billion in the first quarter. quarter, compared to just $1.6 billion in the same period a year earlier. .
This level of profitability provides Tesla with industry-leading flexibility to reinvest in new products and services far beyond its competitors.
The futuristic road ahead
Tesla CEO Elon Musk is notoriously secretive when it comes to the company’s product roadmap. However, during the first quarter earnings call, Musk entertained the investing community and hinted at the new innovations the company plans to roll out. Namely, he briefly highlighted the development of a new vehicle dubbed the “robotaxi” as well as a humanoid robot called Optimus.
The robotaxi will play a vital role in Tesla’s pursuit of fully autonomous vehicles. One of the reasons this taxi fleet could be a lucrative growth engine is its margin profile. For context, ARK Invest CEO Cathie Wood recently released a detailed financial model and business case outlining his expected value for Tesla by 2026. The tech-savvy investor has set a price target of $4,600 per share by 2026 for Tesla. Although it expects only about a third of revenue to come from robotaxi, it estimates that more than 50% of future earnings before interest, taxes, depreciation and amortization (EBITDA) will come from this new line of business. , implying that it will be a much higher margin business than the legacy vehicle business unit.
In addition to the self-driving taxi fleet, Musk provided updates on Tesla’s artificial intelligence efforts, namely its humanoid robot Optimus. The genesis of this project is that Tesla management has a vision to make all of its gigafactories as automated as possible. This means that in the long term, many applications in factories will be driven by precision robotics, which could lead to massive economies of scale. Importantly, Wood believes this development will be over five years away. However, Musk seems determined to pave the way for the future of manufacturing, saying, “Optimus will be worth more than the automotive industry and Full Self-Driving, Tesla’s suite of advanced driver assistance systems, is my firm belief.”
What about the competition?
While Tesla may be making headlines in the EV space, it’s certainly not the only player. Tesla mainly faces competition from other battery-powered car makers such as Rivian and Lucid. In addition, traditional car manufacturers such as Ford and General Engines are also investing heavily in space.
Perhaps what separates Tesla from its competitors is its ability to generate strong operational efficiency, allowing the company to double down on innovation and functionality. For example, Rivian was a company before 2021. While the company holds more than $18 billion in cash on its balance sheet, it only produces about 2,500 vehicles per quarter. By comparison, Tesla produced more than 300,000 vehicles in the first quarter of 2022.
Tesla’s choice to double down on factory automation and intensive research and development in its early years is paying off. The company is outpacing its competitors in real time, and many investors believe the company is just getting started. Following its first quarter earnings report, several Wall Street banks raised their price targets, which should be an exciting and encouraging sign for investors.
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Adam Spatacco owns Tesla. The Motley Fool owns and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.