Tesla’s Profits Decline for the First Time in Over a Year

Tesla’s Profits Decline for the First Time in Over a Year

Tesla released its 2022 Q2 earnings Wednesday and the results are mixed: Elon Musk’s electric vehicle maker reported $US2.3 ($3) billion in second-quarter profit, down from a record $US3.3 ($5) billion in the first quarter of 2022. That’s the company’s first sequential decline in profits in over a year.

The EV company also reported quarterly revenues of $US16.9 ($23) billion, down more than 10% from $US18.8 ($26) billion in the first quarter, as a combination of inflation and increased competition in the EV space made margins shrink.

Tesla also reported that it converted 75% of its bitcoin into fiat currency, which added $US936 ($1,299) million in cash to the company’s balance sheet. It’s worth noting, though, that Tesla bought $US1.5 ($2) billion in bitcoin in February 2021, when prices were more than 35% higher then they are now. The company reportedly lost tons of money in the crypto crash, and could incur up to a $US460 ($639) million “impairment charge” (i.e. loss) from its bitcoin holdings alone, according to a report from Coin Desk.

In Wednesday’s letter to investors the company wrote: “We continued to make significant progress across the business during the second quarter of 2022. Though we faced certain challenges, including limited production and shutdowns in Shanghai for the majority of the quarter, we achieved an operating margin among the highest in the industry of 14.6%, positive free cash flow of $US621M and ended the quarter with the highest vehicle production month in our history.”

While the Shanghai shutdown wasn’t great for the company, Tesla did say that new factories in both Berlin-Brandenburg and Austin have been helping with output.

Tesla has been reporting high quarterly profits for the past couple of years, but much of that likely isn’t actually coming from car sales. Though it bills itself as an EV company, much of its earnings come from selling regulatory credits to other auto manufacturers and government subsidies. The company has earned at least $US6 ($8) billion in regulatory credit sales alone in the past decade, according to reporting from Grid.

“These sales have twice in recent years made the difference between the company posting a profit instead of a loss, according to an analysis by Trefis, a financial data firm,” said the Grid report.

Even so, Tesla’s car business has taken multiple hits recently. Earlier this year, the company’s Shanghai factory shut down for 22 straight days due to a Covid-19 outbreak. Then, even after instituting a lockdown where workers slept at the facility, the same factory had to halt production again over supply chain issues.

Then, there’ve been the multiple recalls surrounding software issues, and the accumulating number of crashes related to the company’s much touted ‘Autopilot’. In fact, there’ve been so many collisions, that the National Highway Safety Administration is investigating Tesla’s tech, and could recall the company’s entire driver assistance feature. The company announced in June that it would cut staff by 10%, and has since begun layoffs with 200 workers from the Autopilot sector.

Plus there’s the Musk’s ongoing Twitter hullabaloo which has had reverberations beyond the social media company. The initial Twitter deal cost Tesla’s share prices about 15% of their total value, and the stock has yet to recover, according to a report from Barrons.

But Tesla’s pushing forward, writing to investors, “With each of the Fremont and Shanghai factories achieving their highest-ever production months and new factory growth, we are focused on a record-breaking second half of 2022.”