Tesla beats revenue and EPS estimates but loses money on electric vehicles.
The earnings season for the first quarter of the year is in full swing. Big names from the US tech sector are reporting their earnings, and Tesla did so after hours yesterday.
At first glance, the results are better than expected. Revenue rose to more than $10 billion from $6 billion in Q1 2020, and profits for the first three months of the current year exceeded $400 million. Moreover, the company reported a free cash flow position of $293 million and record vehicle production in the first quarter of the year.
Why Are Investors Unhappy?
While Tesla has beaten EPS and revenue expectations, the problem is the way it did it. Most of the revenue came from selling regulatory credits ($518 million) and from booking partial profits on its long Bitcoin position ($101 million).
To recap, Tesla announced a big investment in Bitcoin in the first quarter of the year when the price of one Bitcoin was below $40k. The announcement triggered a move higher, and Tesla profited from the bounce by booking a hundred million dollars when it sold some of its position. At the same time as buying bitcoins, Tesla announced that it would accept Bitcoin as payment for new cars, and it has claimed that it sold part of its Bitcoin position to see how much liquidity exists in the market to quickly convert bitcoins into cash.
Put simply, $101 million of profit in the quarter came from speculating on an unregulated market, which is not something that long-term investors will appreciate. If we discount the $518 million in regulatory credits and ignore the profit made on Bitcoin, Tesla actually lost $80 million from its electric vehicle production in the first quarter.
In the United States alone, eleven states require automakers to sell a certain number of zero-emission vehicles, else they have to buy regulatory credits. Selling such regulatory credits accounts for a big chunk of Tesla’s revenue and is the cash cow for Elon Musk’s expansion plans.
In summary, investors don’t like Tesla’s Bitcoin exposure and the fact that the company lost money on its core business of electric vehicle production. Consequently, the share price went down about 3% in the pre-market this morning.