Tesla tweaks outlook announces new battery chemistry

$Tesla(TSLA.US)$ late Wednesday reported record quarterly profit and sales, but spooked investors by tweaking its outlook and saying that chip shortages, port congestion and other supply-chain and infrastructure challenges are preventing its factories from running at full speed.

Tesla said it earned $1.6 billion, or $1.44 a share, in the third quarter,  compared with $331 million, or 27 cents a share, in the year-ago period. Adjusted for one-time items, the EV maker earned $1.86 a share.

Revenue rose 57% to $13.8 billion, from $8.8 billion a year ago.

Analysts polled by FactSet expected Tesla to report adjusted earnings of $1.62 a share on sales of $14 billion.

The ongoing chips and auto parts shortages and problems with logistics have meant that Tesla hasn't run its factories "at full capacity," Zach Kirkhorn, Tesla's chief financial officer, said in a call with investors and analysts after the results.

People want to buy a Tesla,  but "we are not able to increase production capacity fast enough," he said.

"We're trying as hard as we can to maximize that capacity and to be able to meet the demand that we're receiving," but depending on the type of car desired, someone buying a Tesla today could end up waiting a couple of months, or a couple of quarters, he said.

Tesla has roughly doubled its deliveries this year, but that has been "exceptionally difficult to achieve," he said.

Chief Executive Elon Musk was not in the call. After Tesla's second-quarter results in late July, Musk told Wall Street he'd be unlikely be on future Tesla earnings calls "unless there's something important I need to say."

Shares of Tesla fell more than 1% in the extended session Wednesday, after ending the regular trading day up 0.2%. The shares pared some losses toward the end of the after-hours trading.

The "muted" reaction as expectations for a beat were priced in, CFRA analyst Garrett Nelson said. The company saying that the pace of its growth would be largely determined by outside factors also "gives investors pause," he said.

Tesla removed language in its outlook that had kept it optimistic about 2021's growth.

The EV maker has shied away from specific sales guidance this year, and on Wednesday repeated the broad goal of achieving a 50% average annual growth in sales "over a multi-year horizon."

But it removed a sentence that had led Tesla investors to believe this year could be even better: "In some years it may grow faster, which we expect to be the case in 2021."

That rosier hope for this year was written in previous Tesla's letters to shareholders as recently as the second quarter letter but was absent from Wednesday's letter.

At the call, Kirkhorn sought to reassure investors and he reiterated the 50% increase at least in production as a goal for the year, despite the supply-chain bottlenecks.

"I think that will be a difficult goal but that's the goal that the internal team has," he said. Tesla wants to get "millions of cars per year over the next couple of years," and ultimately be able to achieve a rate of 20 million cars per year.

"We're going to grow as quickly as is feasible possibly with an eye towards 50% annual growth rate," Kirkhorn said.

The company said it had $1.3 billion in operating cash flow, minus capital expenditures, in the third quarter. In total, its cash and equivalents fell by $164 million to $16.1 billion in the third quarter.

Operating profits rose mostly thanks to sales volume growth and cost reductions, but that was offset by rising expenses, lower revenue from regulatory credits, additional costs related to the supply-chain snags and a bitcoin-related impairment of $51 million, the company said.

On the technical side, the big news was that Tesla said it was shifting to a cobalt-free battery chemistry for all its standard-range vehicles. Lithium iron phosphate batteries had been an option for certain Model 3 trims.

Cobalt is viewed as the highest supply-chain risk for electric vehicles in the short and medium term, the Energy Department said earlier this year. "There are economic, security, and societal drivers to reduce (cobalt) content," and, moreover, there are no large reserves of the metal in the U.S., it said.

Tesla stock has gained 23% so far this year, compared with gains of around 21% for the S&P 500 index.