Tesla rises as company ekes out a Q1 profit

Key Points
  • Tesla reported first-quarter results on Wednesday, including a $16 million profit.
  • A Covid-19 outbreak in China forced Elon Musk's electric-vehicle maker to suspend manufacturing in Shanghai for more than a week in February and in the U.S. at the end of March.
  • Musk and Tesla CFO Zachary Kirkhorn are expected to update shareholders on the impact of the coronavirus on their business so far and their plans to bring production back online in the U.S.

In this article

Gene Munster weighs in on Tesla's earnings report
Gene Munster weighs in on Tesla's earnings report

Tesla shares rose more than 9% after hours as the company showed its third consecutive quarter with a profit.

Here's how the company did: 

  • Earnings per share (EPS): $1.24 per share, ex-items
  • Revenue: $5.99 billion

Wall Street was expecting an adjusted loss of 36 cents per share and revenue of $5.9 billion for Q1, according to a survey of analysts by Refinitiv. However, estimates varied widely and comparing Tesla's actual results with estimates isn't straightforward, given the difficulty of predicting the impact of the coronavirus. 

The company reported a GAAP profit during the first quarter of $16 million.

However, Tesla also recorded negative free cash flow of $895 million, which will complicate its previously stated goal of being free cash-flow positive for 2020.

Tesla walked back prior guidance in Wednesday's investor update, saying while it has "capacity installed" to hit 500,000 vehicle deliveries in 2020, it remains uncertain how quickly its U.S. car plant, and suppliers, can ramp up production following Covid-19 restrictions. It also said near-term profit guidance is "currently on hold," throwing cold water on hopes that it may achieve its first full year of profitability. 

Previously, Tesla said that it had delivered around 88,400 vehicles in the first quarter of 2020, including: combined deliveries of 76,200 Model 3 sedans and Model Y crossover SUVs, and combined deliveries of 12,200 of the older and more expensive Model S and X vehicles.

Automotive revenue hit $5.1 billion, and nearly 7% of that came from regulatory credits, according to Tesla's Q1 report. The credits helped the company fatten its automotive gross margins, which it says are now up to 25.5%.

Explaining lackluster sales of its Solar energy products during the quarter, Elon Musk said, "Covid essentially shut us down." Tesla reported $324 million in revenue from energy generation and storage products for the quarter. 

This period marked Tesla's first full quarter with a factory open in Shanghai and Tesla's first quarter of Model Y deliveries and production. 

Last quarter, revenue came in at $7.38 billion — Q4 revenues are typically the highest of the year because of seasonal factors — and Q1 2019 revenues were $4.54 billion.

During the Wednesday call with shareholders, executives that Tesla is lowering the price of some of its Model 3 vehicles in China so that customers and the company can snap up new energy vehicle incentives there.

CFO Zachary Kirkhorn explained, Tesla is currently counting about 50% of the payment it receives for purchases of Full Self Driving software as revenue, while deferring the rest. The company plans to recognize more of this as revenue as Tesla rolls out additional, automated driving features. 

Covid-19 effects

Government health orders meant to curb the spread of the virus forced Tesla to suspend production at its new car plant in Shanghai for around two weeks in February. By the end of March, Tesla would face an even longer restriction in the U.S.

Musk slammed the Bay Area's shelter-in-place orders as "unconstitutional" and "fascism" in a profanity-laced tirade on an earnings call Wednesday evening. 

He said: "I think we are a bit worried about not being able to resume production in the Bay Area and that should be identified as a serious risk. We only have two car factories now, one in Shanghai and one in the Bay Area."

And he continued sounding more and more incensed, at one point asking, "What the f--k?"

Musk also ranted about the health orders: "I think people are going to be very angry about this and are very angry. It's like somebody wants to stay in the house? That's great, they should be allowed to stay in the house, and they should not be compelled to leave. But to say that they cannot leave their house, and they will be arrested if they do, this is fascist. This is not democratic. This is not freedom. Give people back their goddamn freedom."

(Leaving a place of residence is not a crime in California under Covid-19 health orders.) 

Musk was able to raise $2 billion in a stock offering in February before the epidemic in China expanded into a global pandemic.

Tesla's main U.S. car plant, in Fremont, California, has been operating at a minimum basic level since March 24, as required by Alameda County public health orders. Minimum basic operations primarily include physical security around the facility and maintenance of equipment and inventory there.

The company also suspended production temporarily at its battery plant outside of Reno, Nevada, and at its facility in Buffalo, New York, where it makes components for its batteries and its electric-vehicle charging stations, along with some solar products.

Impacts of these shutdowns are expected to hit Tesla's balance sheet fully in the second quarter of 2020. The company has already implemented furloughs and pay cuts and ceased all but essential contractor and temp assignments.

Despite coronavirus-related business disruptions, Tesla was able to sell cars online and deliver them to customers with a "contactless" delivery option throughout the U.S. and to keep servicing its customers' cars.

Shelter-in-place coronavirus orders hurt auto sales, dealer stocks
Shelter-in-place coronavirus orders hurt auto sales, dealer stocks

This story is developing. Please check back for updates.