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Thursday, December 1, 2022

Tesla Earnings Preview: China Closures, Low Expectations

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Tesla has had a bumpy road this year, between COVID shutdowns at its Shanghai Gigafactory, a global stock market crash and an early round of layoffs at companies.

Now investors will be inspecting quarterly results to see if the end of 2022 might be better than the tumultuous first half.

The shutdowns — which plagued China this spring as the number of COVID cases rose and the country’s zero-tolerance policy waned — were particularly costly for the electric car maker. In late March, the Shanghai factory, which normally produces half a million vehicles a year, was shut down for three weeks before the company insisted on restarting operations within a strictly closed system (which requires workers to use sleeping bags, showers and cafeteria meals so they can be contacted without contact). could live in the factory from outside). According to some analysts’ estimates, each day of the shutdown would have cost Tesla 2,000 to 3,000 lost production units, totaling up to 63,000 cars that were never delivered.

The production hit also comes as Tesla has struggled with a global shortage of semiconductor chips for more than a year.

But those lost weeks, as well as the status of the closed-loop system ramping up, are still a black box, making it difficult to predict exactly what Wednesday’s earnings report will look like. Some analysts are forecasting a 12% drop in quarterly revenue and a 42% drop in quarterly profit – with the narrower profit margins also due to the rising cost of raw materials such as nickel.

Consensus estimates stand at $16.5 billion for revenue and earnings per share of $1.81.

“The expectations for the quarter are very low,” says the CEO of a research firm told Reuters.

Tesla chief Elon Musk might have suggested that himself. In June, in leaked emails from Musk reported by Reuters, he wrote that he had a “bad feeling” about the economy, which had already seen major indices like the S&P 500 fall more than 1,000 points this year, representing some of its worst losses in decades. Those emails then recommended a global workforce freeze and a 10% cut in the number of salaried workers.

A first round of cuts was carried out a few weeks later, along with the shuttering of the company’s San Mateo office. According to Bloomberg ResourcesThose staffers were responsible for fact-checking whether Tesla’s Autopilot feature correctly identified objects such as trees, street signs, and lanes.

Musk also later in June shared in an interview that Tesla’s brand-new plants in Austin and Berlin were still “giant money-making furnaces” at this point. . . It’s really like a giant roaring sound, that’s the sound of money on fire.”

However, some analysts are hopeful that Tesla can flip the car in the second half of the year. Much of that may depend on whether the Shanghai plant can make up for lost time and whether the new plants in the US and Europe can switch gears. According to the company, it has already started to bounce back in June with “the highest car production month in Tesla history.”

Still, shipments fell for the first time since 2020, to 254,000 units for the quarter.

It faces a new headwind with growing competition in the field, which now includes old automotive heavyweights. Last year, Ford unveiled its F-150 Lightning electric pickup, which rivals Tesla’s long-delayed Cybertruck. And on Monday, General Motors said it would roll out a Chevrolet Blazer electric SUV, a direct competitor to Tesla’s Model Y, next summer.

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