Tesla gains on Musk's optimism about overcoming supply issues

TESLA Inc shares rose after the carmaker reported better-than-expected earnings and Elon Musk predicted production will grow at a fast clip for the rest of the year despite supply chain challenges.

The first major US automaker to report financial results for the first three months handily beat estimates with a record quarterly profit.

Tesla did caution that it remains constrained by shortages of key materials and components, a common refrain for automakers plagued by bottlenecks of parts such as semiconductors.

But Musk, Tesla's chief executive officer, said the company should be able to make up for any production losses in the first half of the year from coronavirus-related shutdowns at its factory in Shanghai.

He said Tesla is on track to expand production to more than 1.5 million vehicles this year, implying more than 60 per cent growth.

"We may pull a rabbit out of the hat," Musk said during an earnings call, adding that he expects production in the third and fourth quarters will be "substantially higher".

Tesla shares climbed 7.8 per cent to US$1,053 around the start of the early trading session Thursday (Apr 21). The stock had slipped 7.5 per cent this year through Wednesday's close.

Earnings excluding some items jumped to US$3.22 a share in the first quarter, Tesla said in its shareholder deck, beating analysts' average estimate for US$2.27 a share. Revenue soared 81 per cent to US$18.8 billion, also topping projections.

Tesla got a revenue boost from regulatory credits totalling US$679 million, more than double the amount generated during the previous quarter.

Chief financial officer Zach Kirkhorn said the gain was mostly due to a one-time US$288 million benefit from stiffer US emissions penalties.

"Credit revenue would have declined compared to the period last year" without that change, Kirkhorn told analysts.

Tesla has repeatedly said it expects credit revenue to shrink over time as automakers launch more EVs to comply with emissions regulations and meet growing demand.

But car companies' early electric models have been unable to replicate the success of the Model 3 sedan and Model Y sport utility vehicle.

"It speaks to where the rest of the auto industry is when it comes to selling EVs in high volumes," said Gene Munster, managing partner of Loup Ventures. "They are still behind."

While Tesla is by far the world's most valuable auto company, with a US$1 trillion market capitalisation, its shares have dipped this year amid concerns about global shortages of key parts.

The stock has still fared better than bigger-volume rivals including General Motors Co and Ford Motor Co, whose shares are down 29 per cent and 23 per cent, respectively.

Increased sales of higher-margin vehicles and cost cuts helped Tesla improve its automotive gross margin to 32.9 per cent.

Dan Levy, a Credit Suisse analyst with the equivalent of a buy rating on the stock, said Tesla's higher returns were a "positive surprise" that bodes well for its ability to keep costs in check and drive sales.

"The cost improvement is critical, as we believe Tesla will ultimately use cost improvements to fund lower-priced vehicles," he wrote in a research note.

Tesla ended the quarter with more than US$18 billion in cash and equivalents.

It's now carrying just US$88 million of debt on its balance sheet, excluding vehicle and energy product financing. BLOOMBERG