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Tesla's Q2 Earnings - Margins Shrinking
$Tesla (TSLA.US)$ recently shared its quarterly earnings reports for Q2 2023, where they achieved record revenue for, but their profit margins dipped slightly thanks to price cuts and incentives. While the company surpassed estimates across the board, it was faced with contracting margins and underwhelming free cash flows.
This stock price was also down about 5% after hours when Elon, and other top-level execs didn't provide detailed information or specific start dates for delivering Cybertruck and self-driving taxis during the earnings call.They also indicated that Tesla's vehicle production would slow in Q3 because of shutdowns for factory upgrades.
Even with a sound balance sheet, Tesla's cash flow situation is not encouraging. Although profits were significantly higher, the company only produced $1 billion in free cash flow in Q2 and around $1.4 billion in H1, which, if annualized, amounts to less than $3 billion - far from ideal for a company valued above $900 billion.
On the brighter side, the report had some positives to take note of:
- Revenue: $24.93 billion, surpassing the expected $24.47 billion
- Earnings: 91 cents per share adjusted, exceeding the expected 82 cents per share
To give some context, in the first three months of 2023, Tesla reported a net income of $2.51 billion from total earnings (revenue) of $23.33 billion, a marked increase from the same period last year.
However, the decrease in operating margins by 34% has led to a year-on-year drop in Tesla's operating profits, despite considerable growth in revenues and deliveries. Lower profit per car sold can be attributed to selling cars at reduced prices and increased expenditure on manufacturing their own battery cells.
Despite the mixed performance, their core automotive business saw a significant 46% year-on-year increase in revenue to $21.27 billion, about a 6.5% increase sequentially. Additionally, their energy generation and storage revenue from solar installations and backup batteries increased by 74% year-over-year to $1.51 billion. With more Tesla vehicles on the road, their services and other revenue also saw a 47% rise to $2.15 billion.
On the topic of future products, Elon shared that high volume production of Cybertruck would start next year and deliveries will begin later this year. He also mentioned that Tesla plans to invest over $1 billion in Dojo, a supercomputer for AI machine learning and computer vision training, over the next year.
In a sci-fi twist, Elon spoke about joining a brain chip with a robotic limb made by Tesla. This could potentially give amputees a superhuman body. He joked that this would be a real-life version of the "Six Million Dollar Man," but for a lot less money.
So, what can investors expect in the future? In the short-term, there may be some bumps in the road. The reduced production in Q3 might affect their earnings for that period, and investors will be keeping a close eye on any updates regarding the Cybertruck and self-driving taxis.
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ISTJ : Don’t you think ppl kinda overly reacted to a small profit margin miss? There are still tons of ways for Tesla to make up to its profit, FSD, cybertruck, AI etc. not even mention the great potential on cost reduction on the manufacturing side
David1978 : Exactly Nick. Shares price does not seem to cross 300. Someone is manipulating the market
Michael Fabish-Wood ISTJ : They weren’t reacting to the earnings. It was what was said during the conference call. Musk mentioned production would be down this quarter and made no mention of news with Cybertruck. All short term investors dumped their positions. I’m here til 2030 at earliest. So I don’t really care, but short term that was bad news for investors.
TeslaSmurf : The shrinking margin is not relevant in Tesla’s REALLY STRONG FINANCES especially because it was a specific choice: prioritise high production numbers to lower the unitary cost and get a high profit anyway, rather than furtherly increase the margin but with a lower production.
Tesla’s goal is to dominate the market with technological and manufacturing superiority. Elon has clearly and repeatedly stated that he doesn’t care about the stock volatility in the short term, so it’s not a matter of concern for any Tesla investor.
It’s more: volatility implies good buying opportunities both for long term ad day trading.
I sold a bunch of TSLL (I have been building the actual position since January, so it’s average price is very low) to have more cash to buy the dip, though I didn’t short the TSLL as I did a few times last year, only to protect the TSLA holding.