Tesla is not only ahead of competitors, It’s leaving them in the dust
Tesla released its earnings for the first quarter of 2022, and it hinted at few callouts that demonstrate how far ahead it is.
The first-quarter earnings season is begun, and one of Wall Street’s most closely watched businesses is off to a flying start. Tesla (TSLA -0.77%) outperformed expectations across the board, reporting outstanding sales, margins, and cash flow figures.
It would be foolish of me to suggest that Tesla does not face a long and difficult road ahead of it in the hyper-competitive electric vehicle market. However, there are multiple reasons for investors to be optimistic about the future of this Cathie Wood favorite. Let’s take a look at the company’s first-quarter financial figures and see what the future holds.
Cash Money
Cash Money The margins attributed to the company’s automotive business, as well as earnings per share, were perhaps the most anticipated data among Wall Street analysts and investors. The company’s total vehicle revenue was $16.9 billion, up 87 percent year over year. When looking at Tesla, it’s vital to remember that selling regulatory credits only accounts for a minor portion of the company’s revenue. Tesla receives government incentives since it manufactures zero-emission vehicles. Tesla then sells these credits to other car companies. Tesla announced $679 million in revenue from regulatory credits in the first quarter of 2022.
Although regulatory credits account for a small fraction of total sales, they must be considered when calculating gross margins. The difference between total automotive revenue and the cost of goods to produce and develop these automobiles is reported by Tesla as automobile gross margin. However, when calculating gross margin predictions, Wall Street analysts often leave out regulatory credits. This is due to the fact that the sale of regulatory credits might fluctuate a lot from quarter to quarter. Investors can obtain a better view of Tesla’s genuine margin profile by eliminating this metric. Tesla’s vehicle gross margin would have been 30% without the contribution of regulatory credits to revenue. In the same period last year, the business reported 22 percent gross margins in its vehicle segment after accounting for regulatory credits.
When looking at the company’s earnings per share and cash flow, the enormous rise in Tesla’s margins is most noticeable. In the first quarter of 2022, Tesla reported earnings per share of $2.86, a 600 percent gain over the first quarter of 2021. Furthermore, cash flow from operations increased to $4 billion in the first quarter, compared to $1.6 billion the year before.
This degree of profitability allows Tesla to reinvest in new goods and services at a rate that is far ahead of the competitors in the sector.
The Optimistic Future
The Optimistic Future Musk, on the other hand, delighted the investor community during the Q1 earnings call, hinting at future technologies the business wants to bring out. He specifically mentioned the construction of a new vehicle known as the “robotaxi,” as well as a humanoid robot known as Optimus.
Tesla’s pursuit of completely self-driving vehicles will be aided by the robotaxi. The margin profile of this taxi fleet is one of the reasons why it could be a profitable growth engine. Cathie Wood, CEO of ARK Invest, has provided a detailed financial model and business case describing her estimated value for Tesla by 2026. Tesla has a price objective of $4,600 per share by 2026, according to the astute tech investor. Despite the fact that the robotaxi will only account for about a third of revenue, she believes it will account for more than half of future earnings before interest, taxes, depreciation, and amortization (EBITDA), implying that it will be a much higher-margin business than the legacy vehicle business unit.
Aside from the self-driving taxi fleet, Musk gave an update on Tesla’s artificial intelligence projects, specifically its humanoid robot Optimus. The project’s origins may be traced back to Tesla’s leadership’s desire to make all of the company’s gigafactories as automated as feasible. This indicates that many factory applications will be dominated by precision robotics in the long run, potentially resulting in significant economies of scale. It’s worth noting that Wood believes this process will take longer than five years. “Optimus will be worth more than the car industry and Full Self-Driving, Tesla’s suite of advanced driver-assistance systems, that’s my firm view,” Musk stated.
How are Tesla’s competitors doing?
Although Tesla may get the most attention in the electric-vehicle space, it is far from alone. Rivian and Lucid, two other battery-powered car firms, are Tesla’s main competitors. Furthermore, traditional automakers such as Ford and General Motors are significantly investing in the market.
Tesla’s ability to create high operating efficiencies may be what sets it apart from its competitors, allowing the company to double down on new ideas and features. Before 2021, Rivian, for example, was a pre-revenue company. Despite having nearly $18 billion in cash on hand, the corporation only produces about 2,500 vehicles per quarter. Tesla, on the other hand, manufactured over 300,000 automobiles in the first quarter of 2022.
Tesla’s early decision to focus on manufacturing automation and extensive research and development has paid handsomely. The company is rapidly outpacing its competitors, and many investors feel the company is only getting started. Following the release of its Q1 earnings report, numerous Wall Street banks raised their price targets, which should be a positive indicator for investors.
