On paper, Tesla Motors had a very good third quarter in 2022, reporting $3.3 billion of net income on total revenue that was up 56% year-over-year to $21.45 billion. In the period, it delivered more than 343,000 vehicles, certainly a strong number but lower than expected. Earnings were good, but other aspects of Tesla’s current position are giving investors pause.
Total production was more than 365,000 vehicles, so approximately 20,000 Teslas were in transit, vehicles that have already found owners. Getting cars to their intended destinations aboard available delivery trucks remains a serious problem. “As our production volumes continue to grow, it becomes increasingly difficult to secure vehicle transport capacity at a reasonable cost during these peak logistics weeks,” the company said. “In the third quarter, we began the transition to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter. These cars have been ordered and will be delivered to customers upon arrival at their destination.”
Tesla also revealed other obstacles. “We achieved an industry-leading operating margin by encountering significant headwinds, year over year,” Tesla said. “Inflation in raw material costs affected our profitability, along with ramping inefficiencies from Gigafactory Berlin-Brandenburg, Gigafactory Texas, and 4680 cell production.”
The ultra-strong US dollar is also a problem for sales outside the US. Ongoing COVID-related lockdowns in China are a problem, although they are said to have become less frequent. Another unusual problem for Tesla was the rapid decline in the value of Bitcoin. Tesla invested $1.5 billion in the cryptocurrency in early 2021, but in its earnings report, it said that 75% had been sold by the end of June.
Logistics problems worry Wall Street. After the earnings report, shares of Tesla took a hit, with Reuters reporting that analysts are “concerned that the electric vehicle maker’s growth momentum may have hit a bump due to rapid inflation and logistical challenges.” Five brokerages lowered their price target on Tesla, with one lowering it to $300. Tesla shares have lost 37% of their value in 2022.
Telsa CEO Elon Musk downplayed delivery issues, saying conditions were simply “a little more difficult than they otherwise would be.” He was optimistic about the fourth quarter. A continuing source of revenue for the company was the $286 million it earned in the third quarter from the sale of emissions credits to other automakers. That income is shrinking as automakers ramp up production of electric vehicles: In the second quarter of 2022, emissions credits were $344 million.
Louis Navellier, founder and chief investment officer of asset manager Navellier & Associates, told US News: “Tesla posted strong third-quarter earnings results, but Tesla’s third-quarter sales were slightly below expectations and its Fourth quarter sales will fall short of earlier optimistic forecasts. This prompted Elon Musk to step in and promise a very strong fourth quarter for Tesla, but Musk’s influence seems to be waning.”