Tesla shares dip on profit, margins

Tesla Inc. reported a lower-than-expected sixth-consecutive quarter of profit and lower margins, sending its shares sliding.

The Palo Alto, Calif.-based firm reported a fourth-quarter profit of US80 cents a share Wednesday on an adjusted basis, falling short of a consensus estimate for US$1.03 and well below the blowout US$2.14 a year ago.

Tesla pared a drop of as much as 7.6 per cent in after-hours trading in New York, and closed Wednesday 2.1-per-cent lower to US$864.16.

The automaker blamed aggressive price-cutting in China, supply chain costs and a big pay package for CEO Elon Musk and other executives for operating margins that shrank to 5.4 per cent in the latest quarter, down from 9.2 per cent in the previous three months.

“It was a mixed bag,” Gene Munster of Loup Ventures said in an interview. “Negative was auto gross margins ex credits. Earnings looked bad, but were actually fine given the stock comp.”

“Tesla is getting more aggressive on price to win market share, and that's why margins dipped,” said Munster. “It's negative for today, but good for the long term given the EV market is nascent.”

Tesla did not give a specific number for how many cars it expects to deliver in 2021, but said that it anticipates beating last year's 50-per-cent growth rate, which would mean more than 750,000 units. It delivered almost 500,000 vehicles globally in 2020.

Despite missing analyst estimates for profit, the results cap a remarkable year for Tesla. The company has defied skeptics by achieving sustained income growth and been rewarded with a record stock price and placement on the S&P 500 Index. Its success has helped spur a rally in shares of other companies with electric-vehicle strategies, both old and new.

Tesla's revenue hit US$10.74 billion in the October to December period, surpassing analysts' estimate for US$10.38 billion and exceeding the US$7.38 billion in the last quarter of 2019.

The company earns money by selling regulatory credits to automakers that need them to comply with carbon-emissions standards in California, Europe and elsewhere. Investors view this revenue as a double-edged sword because they want to know Tesla can be profitable from making and selling cars. Sales of regulatory credits were US$401 million, up from US$397 million in the third quarter.

Tesla said that it has been upgrading its factory in Fremont, Calif., to launch refreshed versions of its S and X models with new powertrains and an entirely new interior. A photo in the shareholder letter shows a small screen for passengers in the back seat. The first deliveries of the Model S began in 2012, and speculation about an overdue refresh have circulated for months.