Tesla Earnings Beat Expectations. Why Its Stock Is Dropping. - Barron's

Tesla cars drive through the West Station during a media preview of the Las Vegas Convention Center Loop on April 9, 2021.

Ethan Miller/Getty Images

Electric vehicle pioneer Tesla reported solid first quarter numbers Monday evening. The numbers should be good enough for skittish investors who have watched shares decline from recent highs. But they will still want to hear more about coming deliveries and production from CEO Elon Musk on the company’s earnings conference call.

Tesla (ticker: TSLA) reported 93 cent in adjusted per share earnings from $10.4 billion in sales. Wall Street was looking for 75 to 80 cents in per share earnings from about $10.4 billion in sales, depending on the source of aggregated earnings estimates.

The numbers just reported qualify as a beat. Tesla stock, however, is down about 1.5% in after hours trading. That’s a small move, however, options market imply shares will rise or fall about 6% after the earnings print. Investors can expect more significant swings after the company talks with analysts and investors beginning at 5:30 p.m. eastern time.

Monday, Tesla stock closed up about 1.2%. The S&P 500 rose about 0.2% and the Dow Jones Industrial Average fell 0.2%.

Shares, as of Monday’s close, are down about 18% from their 52-week high. Higher interest rates, more EV competition from traditional auto makers and a couple of public relations issues as well as the global automotive semiconductor shortage have all weighted on investor sentiment.

There isn’t a lot of detail about any of those topics in the news release. But there is a lot of detail about sales and profit margins. Automotive gross profit margins, excluding regulatory credit sales, came in at 22%. That compares with fourth quarter 2020 gross profit margins of about 21%.

Regulatory credit sales came in at $511 million. Credit sales have been running in the $400 million range per quarter for the past few quarters. Tesla earns credits for selling more than its shares of zero emission vehicles which is sells to other auto makers that don’t make their quota of zero emission cars yet. Higher credit sales boosts overall profitability, but not, of course, automotive profit margins excluding the credits.

Total operating income came in at $594 million, up from $575 million reported in the fourth quarter. Free cash flow was positive at $293.

Overall, it’s a solid print and is a welcome earnings “beat” following the company’s fourth quarter “miss.”

On the conference call, there will be a lot to discuss ranging from Tesla’s progress regarding its full self driving technology to the current state of EV demand to how the global automotive semiconductor shortage might impact production.

The company used the same language for full year 2021 deliveries that it used in the fourth quarter. Tesla plans to grow volumes at about 50% a year on average for the foreseeable future and expects to do better than that in 2021.

Tesla, for context, delivered about 500,000 cars in the 2020.

Write to Al Root at allen.root@dowjones.com

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