Tesla profit tops target; Musk says high prices could hurt demand

By Hyunjoo Jin and Nivedita Balu

(Reuters) -Tesla on Wednesday reported a smaller-than-expected drop in quarterly revenue, helped by a string of value will increase for its vehicles, which Elon Musk later mentioned had been “embarrassingly excessive” and will harm demand.

Tesla additionally offered a majority of its bitcoin holdings, which led to smaller-than-expected impairment prices brought on by a decline within the worth of the cryptocurrency, analysts mentioned.

CEO Elon Musk flip-flopped on a post-earnings convention name, saying at first that macroeconomic uncertainty might need some impression on demand for its electrical autos, however when pressed for particulars by an analyst, he mentioned the corporate didn’t have a requirement drawback however a manufacturing drawback.

He mentioned, “you possibly can’t sort of simply elevate costs to some arbitrarily excessive degree since you cross the affordability boundary after which the demand falls off a cliff.”

“(Costs) are frankly at embarrassing ranges. However we have additionally had a whole lot of provide chain and manufacturing shocks and we have loopy inflation,” mentioned Musk who has beforehand spoken of “an excellent dangerous feeling” in regards to the economic system.

Tesla has raised costs a number of instances up to now yr. For example, the U.S. value of its Mannequin Y long-range model is now $65,990, up greater than 30% because the begin of 2021.

Musk mentioned he anticipated inflation to start out easing by the tip of the yr and most commodity costs to stabilize, which he hoped would enable Tesla to chop costs barely.

Shares in Tesla had been up 1.7% in pre-market buying and selling on Thursday. The shares are down about 40% from their peak in November.

Chief Monetary Officer Zachary Kirkhorn mentioned Tesla was nonetheless pushing to achieve 50% progress in deliveries this yr, including that whereas the goal had develop into harder, “it stays attainable with robust execution.”

Tesla’s China manufacturing facility ended the second quarter with a file month-to-month manufacturing degree, after being pressured to close down as a result of COVID-19 associated lockdowns.

Musk mentioned new factories in Berlin and Texas aimed to supply 5,000 vehicles every week by the tip of the yr, including that Berlin produced 1,000 vehicles every week in June. He had beforehand mentioned the brand new factories had been “gigantic cash furnaces.”

Morgan Stanley analysts mentioned in a report after Tesla’s earnings announcement that they see “near-term margin headwinds as a result of (new) challenges with ramping new manufacturing, significantly in Berlin”.

Tesla executives acknowledged some persevering with tightness in provides of older-generation microchips, however mentioned there have been no main issues in provides of chips and batteries barring unexpected COVID-related shutdowns.

The EV maker posted an adjusted revenue of $2.27 per share for the second quarter ended June versus analysts’ consensus estimates of $1.81.

Automotive gross margin fell to 27.9%, down from a yr earlier and the previous quarter.

Complete income fell to $16.93 billion from $18.76 billion 1 / 4 earlier, ending its streak of posting file income in current quarters. Analysts anticipated $17.10 billion, in accordance with Refinitiv.

BITCOIN TO CASH

Tesla mentioned it had transformed roughly 75% of its bitcoin purchases into fiat forex, including $936 million money to its steadiness sheet.

Musk mentioned the sale was made to extend liquidity when Tesla was unsure about how lengthy the COVID lockdown in China would proceed. Tesla has not offered any of its holdings of the Dogecoin cryptocurrency.

“This needs to be not taken as some verdict on bitcoin,” he mentioned, including that Tesla was open to growing its cryptocurrency holdings sooner or later.

Musk had mentioned in Could final yr that Tesla wouldn’t promote its bitcoin.

“The bitcoin losses level out an necessary a part of the Tesla funding case – its eccentric proprietor. Whereas Musk’s spectacular innovation has served the corporate effectively, his private aptitude is beginning to elevate governance questions,” mentioned Laura Hoy, analyst at Hargreaves Lansdown.

(Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru ; Enhancing by Anil D’Silva, Peter Henderson, Matthew Lewis, Leslie Adler and Himani Sarkar)