Tesla Reports a Profitable First Quarter as Most of the Auto Industry Weathers the Coronavirus Pandemic
【Summary】Tesla reported strong first quarter earnings in 2020, indicating that demand for its electric vehicles remains steady, despite a slowing economy due to the coronavirus pandemic. The company reported its third consecutive profitable quarter for the first time in its history.
While most of the auto industry reels from stalled vehicle production and empty dealer showrooms, electric automaker Tesla reported strong first quarter earnings in 2020, indicating that demand for its electric vehicles remains steady, despite a slowing economy due to the coronavirus pandemic.
Tesla reported its third consecutive profitable quarter in Q1 2020, the first time in the company's history. It's also Tesla's best first quarter for production and deliveries in the company's history. The news sent Tesla's shares up 9% in after hours trading on Wednesday. The stock closed 4% higher at $800.51 after Wednesday's closing bell on Wall Street. Today's it's hovering around $818.00, up another 2.5%.
Tesla's stock has more than doubled since the coronavirus fears caused it to plummet to $361.22 on March 18.
Despite being impacted by the coronavirus since March, Tesla reported a 75% year over year increase in gross profits to $1.3 billion, up from $751 million in the first quarter of 2019. Tesla also increased its cash on hand another $1.8 billion to $8.1 billion, a 29% increase.
Total revenue grew to $5.85 billion, a year-over-year increase of 32%.
Tesla also reported strong production numbers at its factories in the U.S. and China, The company built 102,672 vehicles in the quarter, even after its Fremont, California factory was forced to suspend operations in March during the coronavirus pandemic.
Tesla built 87,283 Model 3 and Model Y vehicles in the first quarter, which is 2% less than Q4 2019, where the company built 104,891. Demand remains strong for the new mass-market Model 3 and Model Y crossover.
As expected, Tesla's lower priced Model 3 has cannibalized sales of its more expensive flagship Model S and Model X SUV. Tesla delivered 12,230 Model X and S vehicles in the first quarter of 2020, a year over year increase of just 1%. However, deliveries of the Model 3 sedan and Model Y are up 50% year over year.
Comapred to Q1 2019, sales of the Model S and X are down 37%, while sales of the Model 3 and Y are down 31% in the same period. However, these numbers reflect the effects of the shelter-in-place orders and the slowing of the U.S. economy during the ongoing coronavirus pandemic. Quarterly sales down across the board for the auto industry as most people raimin at home.
Tesla produced 15,390 Model S and X vehicles, a year over year increase of 9%. The company's total production increased by 33% compared to Q4 2019. Tesla does not break up sales of each model individually.
Tesla Chief Executive Elon Musk perdicts that the new Model Y crossover may outsell all of Tesla's other models combined.
Tesla Achieves Better Production Efficiencies
Part of the reason for Tesla's production ramp up is better efficiencies at its assembly plant in California, the company said. Tesla said its new "simplified and scalable" approach to manufacturing is beginning to take effect with the new Model Y crossover. Tesla said it has the global capacity installed to produce 500,000 vehicles a year.
The company says that the Model Y production ramp up in Shanghai and eventually Berlin are two of its most important near term projects.
Tesla said it was able to build more Model Y's in the first quarter of production than in the first two quarters of Model 3 production in 2017, indicating that Tesla has solved many of its production challenges that delayed deliveries of the Model 3 sedan, the company's first mass-market offering.
One example of Tesla's improved production is on the Model 3, which shares around 80 percent of its components with the Model Y crossover.
The rear underbody structure of the Model 3 once used 70 pieces of metal, welded together to form a single component That same part has been reduced to just 2 pieces now. Tesla said that this same structural component will eventually be made into a single piece.
Production of the Model Y will resume when Tesla can reopen the closed plant, which is located in Alameda County, one of the Bay Area counties still under a shelter-in-place order. As of today Tesla's California factory remains closed.
Ramping Up Production in Shanghai
Tesla's production ramp up at its new Shanghai gigafactory is also taking shape. The automaker announced its nearing its production target of 4,000 Model 3 per week at its Shanghai gigafactory. Tesla is aiming to produce 200,000 vehicles per year in Shanghai, a figure the company believes its can reach by mid-2020.
Tesla's Shanghai factory is its first overseas plant, which allows it to produce vehicles locally and avoid import tariffs in the world's biggest auto market, giving Tesla an advantage over its rivals in China.
So far, Tesla has only been producing the Standard Plus Model 3 in China since the factory went online late last year. However, this month Tesla said it opened reservation for the more expensive Long Range Model 3 version, as well as the top of the line Performance variant.
Tesla also provided an update on its new factory in Berlin, Germany, the automaker's first production facility in Europe. The company announced that its about to break ground in the first construction phase, with the first Model Y's built in Europe rolling off the assembly line in 2021.
Other updates from Tesla include the latest version of Tesla's automated driving system Autopilot & Full Self Driving (FSD). The updated system includes traffic light and sign recognition for the first time. It's currently available for owners participating in Tesla's its "Early Access Program", but its expected to be made available to a wider public in the upcoming weeks.
Tesla also made steady improvement in the range of its vehicles. Boosting the range of the Model S to 391 miles and the Model X to 351 miles, without increasing the size of the battery pack in the vehicles.
Tesla's earnings announcement on Wednesday was overshadowed by a controversial, expletive-laden rant from its mercurial Chief Executive Elon Musk during the call with analysts. Musk expressed his frustration with the mandatory shelter in place orders due to the coronavirus pandemic, saying it "poses a serious risk" to the company, despite Tesla's positive outlook and a strong Q1.
He also stated that governments ordering people to stay at home or face arrest if they leave is "fascist." Despite his strong opinion, Musk is incorrect since no U.S. states have actually "ordered" their residents to stay home.
Despite Musk's personal views, Tesla's profitable quarter during the coronavirus pandemic surprised analysts and its now Tesla's third profitable quarter in a row.
Meanwhile, Tesla's U.S. rival Ford Motor Company announced a loss of $2 billion this week in Q1. This indicates that Tesla is becoming a powerful force in the auto industry. Global automakers are now rushing to deliver their own fully-electric models to catch up.
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