A strong delivery schedule, rising demand for its products, and performance improvements across all business lines drove Tesla, Inc. (TSLA) to record earnings in the second quarter of 2021. The electric car maker reported $11.96 billion in revenues versus analyst expectations of $11.2 billion. Its income was $1.1 billion, an astounding 998% increase from year-ago figures, besting consensus estimates of $600 million for this quarter. Tesla reported earnings per share (EPS) of $1.45 as it improved profit margins, significantly exceeding analysts' EPS forecasts of $0.98.

Sales of regulatory credits, a major source of revenue for Tesla in past quarters, fell by 17% to $354 million in 2Q 2021, and the company wrote down the value of its Bitcoin (BTCUSD) investment by $23 million as the cryptocurrency shed its earlier high valuation.

Key Takeaways

  • Electric vehicle maker Tesla handily beat analyst estimates and reported a record quarter.
  • The company also had double-digit operating margins, a first, and took a $23 million impairment in its Bitcoin investment.
  • Tesla has said that chip shortages will continue to determine its earnings growth rate for the rest of this year.

Tesla's stock rose by as much as 3.2% to $678.40 in after-hours trading. That increase was in addition to a price bump of 2.2% to $657.62 during the day after investors bid up the company's stock price in anticipation of a positive earnings beat. "I don't think anyone expected this big of a beat, but with a market cap of over $600 billion, it takes more to move the stock than it used to," analyst Ben Kallo of Robert W. Baird told Bloomberg.

A Billion-Dollar Milestone

Tesla's income crossed the $1 billion mark for the first time in its history yesterday on the back of the Biden administration's regulatory tailwinds and a change in public perception about electric cars. "Public sentiment and support for electric vehicles seems to be at a never-before-seen inflection point," the company wrote in its earnings release.

As the biggest car company by market capitalization, Tesla is well positioned to ride the crescendo of this inflection. Its car delivery numbers jumped to 201,304, a surge of 121% as compared to year-ago figures.

Of those delivery figures, 98% were for its mass market models – Model 3 and Model Y – and most of them were made in China. Tesla's Shanghai plant has an annual manufacturing capacity of more than 450,000. Production for Model Y, which was the best-selling electric car in the United States, is scheduled to begin at Tesla's facilities in Austin and Berlin later this year.

Tesla made just 1,895 deliveries of Model X and Model S, its high-end and more expensive models, due to planned updates for both. Last week, the company started deliveries for Model S Plaid, only to inexplicably stop them over the weekend. It resumed deliveries this week. Tesla has also announced plans to update the configuration for Model X.

Other parts of Tesla's business also improved performance. Battery storage and solar deployment brought in $801 million in revenues. The former tripled to 1,274 GWh in deployments from a year ago, and the company deployed 85 MW of solar panels, an increase of 215% from year ago figures, this past quarter. On a sequential basis, however, that figure represented a decline of 7.6% from the previous quarter. The performance of Tesla's solar business was in the spotlight recently after CEO Elon Musk testified in a Delaware court regarding the company's controversial 2016 acquisition of SolarCity.

The services division reported revenues of $951 million, up by 95.2% from year-ago figures. In addition to operating store and service locations and a mobile fleet, Tesla has added monthly subscription models for its advanced driver assistance systems (ADAS) to boost its revenues in this segment.

As it expands operations across geographies, the company has increased its capital spending to $1.5 billion, a jump of 176% from last year. Simultaneously, it doubled profit margins to 11%. Operating margin is a measure of profit per dollar of production expenses. For most of its life as a publicly listed company, Tesla has reported negative profit margins.

Another big-ticket item in Tesla's earnings statement was Bitcoin's price decline. The Palo Alto, California-based company announced a $1.5 billion investment in the cryptocurrency in January and has sold 10% of those holdings for a profit. But it had to take a $23 million impairment charge this quarter after the cryptocurrency's price crashed by more than 50% from its record high in April. Tesla CEO Elon Musk has become a polarizing figure in the cryptocurrency ecosystem, able to swing prices with his tweets.

A Pandemic Record

Tesla's record-setting performance this quarter occurred during a pandemic shutdown that exacerbated supply chain issues. Raw material costs have risen due to increased commodity prices, and shortages have delayed manufacturing schedules. The company has also had to contend with a regulatory probe in China and safety concerns related to its cars.  

Like other automakers, Tesla's production line has also been beset with problems. Chip shortages and unavailability of battery cells affected its production line, leading to further postponements of anticipated products from its pipeline.

For example, the Semi truck, which was supposed to be released in 2019, will now be launched in 2022. Tesla blamed "supply chain challenges" for the delay. In the last quarter, CEO Elon Musk said that the company would produce its own battery cells with a new design and manufacturing process. The goal is to pack in more energy density per battery and produce a $25,000 car within the next three years.

Even as it reported a blockbuster quarter, Tesla warned of bumps ahead. "For the rest of this year, our growth rate will be determined by the slowest part in our supply chain," Tesla CEO Musk told analysts during the earnings call. "Chip supply is fundamentally the governing factor on our output."