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Tesla earnings may come under pressure from Shanghai factory halt

19 April 2022 - 16:12 By Reuters
An aerial view of the Tesla Shanghai Gigafactory in China.
An aerial view of the Tesla Shanghai Gigafactory in China.
Image: Xiaolu Chu/Getty Images

Tesla investors on Wednesday will be keeping an eye on whether the electric car company maintains its ambitious 2022 delivery target as the biggest factory, Shanghai, grapples with a Covid-19 shutdown and new plants slowly ramp up output.

Tesla reports quarterly results and analysts are also asking whether CEO Elon Musk will discuss his $43n (roughly R640,598,090,000) proposal to buy Twitter and if he will use some of his Tesla shares to help fund the deal.

The suspension of Tesla's Shanghai factory related to Covid-19 and the costs of ramping up new factories in Berlin and Texas are likely to have weighed on its first-quarter earnings, analysts said.

Musk said in January Tesla's volume growth would comfortably exceed 50% from last year, meaning Tesla expects to deliver more than 1.4-million vehicles this year.

Tesla navigated the global supply chain crisis better than other rivals, posting record deliveries and earnings for several quarters. But its factory in Shanghai was shut for more than three weeks after the city rolled out lockdown measures to combat a surge in Covid-19 cases.

Tesla resumed production at its Shanghai plant on Tuesday, according to a news report.

"The Shanghai restart cadence (and) the Berlin/Austin ramp add an element of uncertainty to 2022 deliveries," Credit Suisse analyst Dan Levy said in a client note.

"We expect significant focus on gross margin in the 1Q print. We forecast a reversal from Tesla's recent run of lofty margins."

The Austin, Texas-based company is expected to report $17.80bn (roughly R265,259,160,000) revenue for the January to March quarter, up more than 70% from a year earlier, but largely unchanged from the previous quarter, according to Refinitiv data.

Refinitiv's mean analyst estimate for Tesla is for earnings of $2.26 per share. This is up from 93c per share a year earlier, but on a quarter on quarter basis, marks the first quarterly fall in two years.

Musk delivered Tesla's first Texas-made Model Y vehicles at a glitzy event earlier this month, but no Texas vehicles are listed on Tesla's order website yet.

"It'll probably be a while before the Texas factory can get up to full speed," Guidehouse Insights analyst Sam Abuelsamid said, citing challenges of launching volume production of 4680 cells likely to be used in the Texas vehicles.

Analysts and investors also are asking how Musk's pursuit of Twitter will affect his running of Tesla. Musk, CEO of SpaceX, previously said he was splitting his time between Tesla and the rocket company.

"Running Twitter would be a possible distraction for a CEO who already has a full plate," Wells Fargo said in a report.

Even if he brings in private-equity partners to his Twitter bid, he is going to be a substantial shareholder in the social media company, meaning he would likely have to have to sell some Tesla stocks to finance the deal, Goldstein said.

Musk said last week that he was not sure whether he would be able to acquire Twitter, and said he has a Plan B if Twitter rejected his offer.


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