Tesla easily surpassed consensus earnings estimates in Q2 despite macro-economic concerns over rising interest rates and inflation.
Shares of electric-vehicle manufacturer Tesla (NASDAQ: TSLA) are trading higher in pre-market today after the company announced its Q2 earnings on July 20. In the June quarter, Tesla reported revenue of $16.93 billion and adjusted earnings of $2.27 per share.
Comparatively, analysts forecast the EV giant to report revenue of $17.1 billion and adjusted earnings of $1.81 per share in Q2.
While Tesla missed revenue forecasts, it easily surpassed earnings estimates in Q2. In the year-ago quarter, Tesla's revenue and earnings per share stood at $11.95 billion and $1.45, respectively. So, while sales increased 42%, profit margins expanded by 57% year-over-year in Q2 of 2022, driving Tesla stock 1.4% higher in pre-market trading at the time of writing.
A deep dive into Tesla's Q2 results
Despite a challenging macro-environment, Tesla reported encouraging June quarter results, which was cheered by Wall Street. The company faced COVID-19-related shutdowns in China, limiting its production capacity for the majority of Q2, but ended the quarter with an operating margin of 14.6%, which is among the highest in the automobile sector. Tesla also ended Q2 with a free cash flow of $621 million.
Tesla's factories in Berlin and Austin continued to ramp up production in Q2. The Gigafactory in Berlin produced 1,000 cars in a single week and achieved a positive gross margin in the quarter, which is an important milestone. Tesla continues to invest heavily in capacity expansion of these factories to maximize production and benefit from economies of scale.
Its factories in Fremont and Shanghai achieved their highest-ever production months in the June quarter. Given its aggressive expansion goals, Tesla is on track to report record production numbers in the second half of 2022.
Further, Tesla continues to expand its charging infrastructure rapidly and added 3,971 supercharger locations in Q2, bringing the total to 36,165 connections. The number of charging locations rose by 34%, while its store and service center locations increased by 19% year-over-year.
However, Tesla emphasized a temporary decline in production volume at its Shanghai factory led to a reduction in gross margin that stood at 27.9%, compared to 32.9% in Q1. Tesla's CEO Elon Musk explained that due to uncertainty regarding China's COVID-19 lockdowns, Tesla sold 75% of its Bitcoin holdings worth $976 million in Q2 to maximize its cash position.
Is Tesla stock a buy right now?
Tesla is focused on growing its manufacturing capacity at a fast pace. It aims to achieve an average annual growth rate of 50% in vehicle deliveries over a multi-year horizon. But the growth rate is a combination of factors that include operational efficiency, equipment capacity, manufacturing uptime, and the stability of its supply chain among others.
Tesla has enough liquidity to fund its expansion plans, given it ended the quarter with almost $19 billion in cash. In addition, it has successfully reduced the cost of manufacturing and operations over time while expanding its product portfolio at a robust rate.
The company disclosed the much-awaited Cybertruck would begin production in mid-2023, unlocking another revenue stream for Tesla.
Like most other growth stocks, Tesla has also burnt investor wealth in 2022. Tesla stock is down almost 40% from all-time highs, valuing the company at $746 billion by market cap. Analysts tracking the company expect Tesla's revenue to rise by 58% year-over-year to $84.92 billion and adjusted earnings per share to widen by 65.6% to $11.81 per share in 2022. So, Tesla stock is valued at 8.8x forward sales and 63x forward earnings, which is quite steep.
While there is a good chance for Tesla shares to move lower in the case market sentiment deteriorates further, it's impossible to time the bottom. Tesla is the undisputed leader in its sector with an enviable war chest and a growing portfolio of quality automobiles, making it a top bet for long-term investors.
