Tesla turns Q1 profit on cost reductions, rising car margins, credits

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Tesla reported Wednesday that it earned $16 million and generated $5.985 billion in revenue in the first quarter, results buoyed by improved automotive margins and reductions in operating expenses.

Tesla’s first quarter earnings were lower than the fourth period as the COVID-19 pandemic disrupted operations and dampened sales. But the company still managed to squeeze in a profit, its third consecutive quarter of profitability, despite the COVID-19-related disruption.

Tesla’s earnings report paints a complex financial picture. While it managed to eke out a GAAP profit, it also reported a negative free cash flow of $895 million in the first quarter. Tesla has previously targeted being free cash-flow positive for 2020.

Tesla’s profitability target was aided by a 13% reduction in operating expenses compared to first quarter 2019, and improved automotive margins. Tesla also cashed in more regulatory credits in the first quarter than it had in more than a year. Tesla includes revenue from credits in its automotive revenue.

Its automotive gross margins grew to 25.5% in the first quarter, up from 20.2% in the same period last year. Tesla includes regulatory credits in its automotive revenues, which figure into its gross margins. Regulatory credits in the first quarter were $354 million, a 64% increase from the first quarter of 2019.  Revenue from credits dropped after the first quarter of last year, hovering between $111 million and $134 million, before popping again this latest quarter.

Tesla’s $5.985 billion in revenue was 19% lower than the fourth quarter when it generated $7.38 billion. However, its first quarter revenue is 32% higher than the $4.5 billion it generated in the same period last year.

Tesla earned $16 million, or 9 cents a share in the first quarter, 85% lower than the fourth period when it earned $105 million in net income, or 56 cents a diluted share. Tesla’s first quarter earnings were wildly ahead of the same period last year when it posted a $702 million loss.

When adjusted for one-time items, Tesla earned $227 million, or $1.24 a share in the first quarter of 2020.

The company reported that quarter-end cash and cash equivalents increased by $1.8 billion compared to the previous quarter to $8.1 billion. That increase was driven mainly by Tesla’s $2.3 billion capital raise in February.

The first quarter was full of milestones for Tesla. It was the first full quarter that its Shanghai factory was at volume production. It’s also the first quarter that the automaker began producing and delivering the Model Y.

Tesla remained committed to its earlier sales outlook for 2020 of hitting 500,000 vehicle deliveries, but stopped short of saying it could hit that goal. The company said it had the capacity installed to exceed 500,000 vehicle deliveries this year, despite announced production interruptions.

“For our US factories, it remains uncertain how quickly we and our suppliers will be able to ramp production after resuming operations. We are coordinating closely with each supplier and associated government,” the company said in its shareholder letter.

Tesla reported its first quarter earnings a day after CEO Elon Musk sent out a FREE AMERICA NOW tweet to his 33.4 million followers in response to the several Bay Area counties extending a stay-at-home order through the end of May. Tesla is headquartered in Palo Alto and its main factory, as well as several other related facilities, are located in Fremont, Calif. and are subject to the order.

The company suspended production at the factory March 24. It had planned to bring it back online May 4. The company’s other U.S. operations have also been temporarily shut down, including its factory in Sparks, Nev. and its solar facility in Buffalo, N.Y.

Earlier this month, Tesla reported that it delivered 88,400 vehicles in the first quarter, beating most analysts expectations despite a 21% decrease from the previous quarter as the COVID-19 pandemic put downward pressure on demand and created logistical challenges.

Tesla produced 103,000 electric vehicles in the first quarter, about 2% lower than the previous period.