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Tesla Exceeds Profit Target; Musk doesn’t see a demand problem

Tesla Exceeds Profit Target;  Musk doesn't see a demand problem
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July 20 (Reuters) – Tesla Inc (TSLA.O) China reported a smaller-than-expected drop in quarterly profit on Wednesday as a series of price hikes in electric vehicles (EVs) helped offset production problems caused by the COVID-19 lockdowns.

Chief Financial Officer Zachary Kirkhorn said Tesla is still on track to achieve a 50% increase in deliveries this year, adding that while the target has become more difficult, it “remains possible with strong execution.”

Chief executive Elon Musk said he expects inflation to begin to decline by the end of 2022 and most commodity prices to stabilize.

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Musk said during the conference that Tesla has a production problem, not a demand problem. He dismissed the idea that global economic problems are driving Tesla’s interest, with vehicle prices rising to what he called “embarrassing levels.”

The U.S. price of Tesla’s long-range Model Y, now $65,990, has risen more than 30% since the start of 2021.

Tesla shares were up about 1% in after-hours trading. Shares are down nearly 40% from their peak in November.

Tesla’s China factory ended the second quarter with record monthly production levels. The new factories in Berlin and Texas aim to produce 5,000 cars per week by the end of the year, Musk said, adding that Berlin produced 1,000 cars per week in June.

Musk previously said the new factories were “huge money sinks” and that he had a “very bad feeling about the economy.” read more

Analysts at Morgan Stanley said in a report after Tesla announced earnings that they see “near-term margin headwinds due to (new) challenges in ramping up new production, particularly in Berlin.”

Tesla executives acknowledged some ongoing supply constraints for older-generation microchips, but said there was no major problem with chip supply to avoid unexpected COVID-related shutdowns.

The Tesla logo is seen in Los Angeles, California, USA on January 12, 2018. REUTERS/Lucy Nicholson

The EV maker reported adjusted earnings of $2.27 per share for the quarter, versus analysts’ consensus estimates of $1.81. That was $3.22 lower than the previous quarter.

Its auto gross margin fell to 27.9% from a year ago and the previous quarter amid inflationary pressures.

Tesla’s total revenue fell to $16.93 billion from $18.76 billion in the second quarter, ending a streak of record profits in recent quarters.

Analysts had expected revenue of $17.10 billion, according to Refinitiv’s IBES data. read more

CASH FROM BITCOIN

Tesla said it converted about 75% of its bitcoin purchases to fiat currency, adding $936 million in cash to its balance sheet.

Musk said the sale was made to boost liquidity at a time when Tesla is uncertain how long China’s COVID-19 lockdown will last. Tesla has not sold any of its Dogecoin cryptocurrency holdings.

“This shouldn’t be taken as some judgment on bitcoin,” he said, adding that Tesla is open to increasing its holdings of the cryptocurrency in the future.

Musk announced in May last year that Tesla would not sell its bitcoin.

“Bitcoin losses highlight an important part of Tesla’s investment case — its eccentric owner. While Musk’s impressive innovation has served the company well, his personal talent is starting to raise management questions,” said Laura Hoy, an analyst at Hargreaves Lansdown.

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

Our standards: Thomson Reuters Trust Principles.

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