Tesla profits could come under pressure from Shanghai factory shutdown

Chinese-made Tesla Model 3 vehicles are seen during a delivery event at the carmaker’s factory in Shanghai, China January 7, 2020. REUTERS/Aly Song/File Photo

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SAN FRANCISCO, April 19 (Reuters) – Tesla investors will watch on Wednesday whether the electric car company sticks to its ambitious 2022 delivery target as the largest factory, Shanghai, grapples with a COVID-19 shutdown and new factories are slowly increasing production.

Tesla (TSLA.O) reports quarterly results and analysts are also asking if CEO Elon Musk will discuss his $43 billion proposal to buy Twitter (TWTR.N) and whether he will use some of his Tesla stock to help fund the deal. Read more

The COVID-19-related suspension of Tesla’s Shanghai factory, the costs of ramping up new factories in Berlin and Texas, and rising supply chain costs likely weighed on its first-quarter earnings , analysts said.

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Musk said in January that Tesla’s volume growth would comfortably exceed 50% over last year, meaning Tesla expects to deliver more than 1.4 million vehicles this year. Read more

Tesla weathered the global supply chain crisis better than other rivals, posting record shipments and profits for several quarters. But its Shanghai factory was closed for more than three weeks, after the city introduced lockdown measures to tackle a rise in COVID-19 cases.

Tesla resumed production at its Shanghai factory on Tuesday, according to a report, but a source said that may not mean a return to full production. Read more

“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, cutting his delivery estimates by 100,000. to 1.42 million this year.

He predicted “a reversal from Tesla’s recent run of high margins, driven by cost inflation and production inefficiencies.”

Tesla has raised prices in China and the United States and other countries, after Musk said in March that the American electric car maker was facing significant inflationary pressure in raw materials and logistics in the context of the Ukrainian crisis. Read more

The Austin, Texas-based company is expected to report revenue of $17.80 billion for the January-March quarter, up more than 70% from a year earlier but largely unchanged from compared to the previous quarter, according to data from Refinitiv.

Refinitiv’s average analyst estimate for Tesla is for earnings of $2.26 per share. That’s up from 93 cents per share a year earlier, but on a quarterly basis, it’s the first quarterly decline in two years.

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

“It will likely take some time before the Texas factory can reach full speed,” said Guidehouse Insights analyst Sam Abuelsamid, citing challenges in launching volume production of the 4,680 cells likely to be used in Texas vehicles. Read more

Tesla also began deliveries of its new Berlin factory in March. Read more

“You have a lot of fixed costs to run the new factories, but not a lot of production to spread the cost,” Morningstar analyst Seth Goldstein said.

Analysts and investors are also asking how Musk’s pursuit of Twitter will affect his handling of Tesla and rocket company SpaceX.

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

Even if he’s bringing in private equity partners for his Twitter bid, he’ll be a major shareholder in the social media company, meaning he’ll likely have to sell Tesla stock to fund the deal, he said. said Goldstein.

Musk said last week he wasn’t sure he could acquire Twitter and said he had a plan B if Twitter rejected his offer.

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Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru; Editing by Peter Henderson, Anil D’Silva and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

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