Tesla’s latest quarterly earnings report reveals profit of $1.14 billion for Q2 2021. This beats the expectations of top analysts and marks the first time that Tesla has posted a quarterly profit of more than $1 billion. The news was enough to send Tesla stock up by more than 2.2%.
This is Tesla’s eighth straight profitable quarter, perhaps not entirely surprising considering that the company delivered almost 500,000 vehicles in 2020 and also set company records for quarterly vehicle deliveries in both Q1 and Q2 of this year.
It also does a brisk business in selling carbon credits to other car companies, something that got highlighted by its legal challenge to the Trump Administration’s delay in implementing new automobile industry emissions regulations, which it says hurt the carbon credit market. The trade in carbon credits has often been criticized for giving major polluters in private industry a way to dodge having to invest in “cleaner” technology.
Even with the legal challenge providing proof that the carbon credit market is important to Tesla, the breakdown of the quarterly report indicates that only $354 million of the $11.96 in total revenue that Tesla brought in during Q1 2021. Total revenue from the automotive side of its business was $10.2 billion.
Profitability did get reduced by increased operating expenses and a drop in the value of bitcoin. Earlier this year, Elon Musk revealed that Tesla has significant bitcoin holdings, which at the time was worth $1.5 billion. It has sold some since then, Musk says to establish the liquidity of its bitcoin holdings.
A shortage of semiconductor chips has put a crimp on automobile manufacturing across the board and especially impacted electric vehicle manufacturers like Tesla. This problem is especially complicated by the fact that the majority of semiconductor chips are manufactured in Taiwan, a country that has become a pain point in diplomatic relations between China and the rest of the world. China does not recognize Taiwan’s independence.
The company has floated the idea of solving this problem by taking extra steps to secure an adequate supply of semiconductor chips, possibly by paying for them in advance or acquiring its own semiconductor chip manufacturer. It had previously bought stakes in suppliers, especially automobile battery manufacturers like the battery assembly company German ATW Automation.
“With global vehicle demand at record levels, component supply will have a strong influence on the rate of our delivery growth for the rest of this year,” an unnamed company official said at the investor meeting at which the Q2 2021 earnings report was released.
Challenges for Tesla also include delays in the opening of Gigafactory Berlin, primarily due to regulatory red tape and legal challenges from environmentalists. Vehicle deliveries for the European market currently rely on imports from Gigafactory Shanghai in China.
The Chinese market has also faced challenges including the government’s banning of Tesla vehicles on its properties and poor publicity surrounding safety issues that include recalls to fix issues with the Autopilot software and loose screws in suspension units. Actual sales of Tesla vehicles have been slow in China this year even though the company reported increased deliveries in this important market.
Tesla also has a reduced amount of cash on hand, primarily due to debt and finance lease payments totalling $1.6 billion. Despite the issues that likely inspired Elon Musk’s recent admission that the company causes most of his headaches, Tesla is showing its ability to post increasingly profitable quarters.