Elon Musk plans rapid EV buildout after Tesla profits slip

Source: By David Ferris, E&E News reporter • Posted: Thursday, January 28, 2021

Tesla Inc., the world’s most valuable automaker, saw its stock fall yesterday after its fourth-quarter profits disappointed investors. But CEO Elon Musk said a march of new factories will cause the electric automaker’s output to grow at a sizzling rate of 50% a year “for many years to come.”

Tesla held a phone call with investors to share its financial results from last quarter and the whole of 2020, and analysts were most curious about whether the company would turn a profit.

It did, but Tesla made less than Wall Street had expected, and it was still heavily reliant on government credits rather than sales of its cars.

Musk made no mention of President Biden. On Monday, Fortune reported that Musk said he was “super fired up” about Biden, who is supporting the rollout of electric vehicles as he ramps up efforts to combat climate change.

Musk also was silent on the topic of a $100 million prize for carbon-capture technology. Last week, the entrepreneur said on Twitter that such a pledge would be forthcoming this week (Energywire, Jan. 22).

Earnings of 80 cents per share were below Wall Street’s estimates for Tesla of $1.03. On the other hand, its revenue of $10.74 billion slightly exceeded analysts’ expectations.

The results marked six consecutive quarters, and a first full year, of profit for Tesla. In the last year, Tesla’s stock price has increased seven times over.

Tesla’s stock fell 5% in after-hours trading, to $820 a share.

Here are six takeaways from Tesla’s results:

Credits, not cars, drive profits

Government credits — which are sold to other automakers that aren’t meeting their emissions goals in Europe and the United States — made up $401 million of Tesla’s revenue in the last quarter of 2020.

The company’s net income for the quarter was $270 million, meaning that a profit wouldn’t have occurred without the credits.

“In the long term, regulatory credit sales won’t be a material part of the business,” said Zachary Kirkhorn, the chief financial officer of Tesla, on the call.

But for the time being, they are important: Tesla has higher profit margins than other automakers, but it relies on a government-driven tool its top competitors can’t use.

Analysts were willing to give Tesla the benefit of the doubt.

“I’d still like to see profit without government subsidies, but Tesla will get there if the revenue and volume numbers keep moving in the right direction,” said Karl Brauer, an analyst at iSeeCars.

Musk sees unlimited growth

Tesla executives said repeatedly on the call that they expect that deliveries of their cars to grow by 50% a year, and that in 2021, that rate may be even higher.

Last year, Tesla produced just shy of 500,000 vehicles.

The company’s confidence comes from a long and aggressive timeline for adding factories.

Yesterday it said it expects to start producing its Model Y, an SUV, from its plants in Berlin and Austin, Texas, even though both are still under construction. As of now, it makes the vehicle in Fremont, Calif., and is quickly ramping up output from a new factory in Shanghai.

Tesla may be the most valuable automaker, but it has a long way to go to catch up in production to Toyota, the most productive automaker, which cranked out almost 10.5 million vehicles in 2017.

Updates to flagship vehicles

Tesla announced a redesign of its luxury Model S sedan and its Model X SUV.

Both vehicles have an updated interior, the first refresh in years, including a larger touch screen, a video screen for backseat passengers, and a new, U-shaped steering wheel that Tesla is calling the “yoke.”

Both will be available in a deluxe version called Plaid, which replaces the Performance line. The high end of that, called Plaid+, will have a sticker price of $133,000 for the Model S and a range of more than 520 miles.

It will go zero to 60 mph in less than two seconds and will, Tesla said, have the quickest acceleration “of any production car ever.”

Both vehicles are starting deliveries in February, Musk said.

Cell shortage is a problem

Asked whether Tesla plans to build an electric van — an area that is heating up, with new entries from Ford Motor Co. and General Motors Co. — Musk said that he’d like to but that the automaker lacks the battery cells.

He said that the same problem is constraining the development of the Tesla Semi, the company’s tractor-trailer. “We simply don’t have enough cells for it,” Musk said.

On top of that, he estimated that a vehicle that heavy needs five times the battery cells of a passenger car — but can’t be sold for five times the price.

Nonetheless, Musk said that the first deliveries of the Semi will come at the end of this year. A factory to produce the vehicle has not yet been named.

Energy storage and solar are ramping up

Tesla reported a record $787 million of revenues in its energy storage and solar businesses, which it lumps together. That is far more than any preceding quarter.

Most of the action was in energy storage.

The company sells the Powerwall, a wall-mounted battery meant for homes, and the Megapack, a 3-megawatt-hour giant intended for utility-scale projects. Tesla said that it sold 3 gigawatt-hours of storage in 2020 and that the lion’s share of that was the Megapack.

Signs are that Tesla’s moribund solar business is stirring back to life.

Tesla dominated the residential solar sector for a brief time when it acquired market leader SolarCity Corp. in 2017. But it let that lead slip away as it made a costly and risky switch from regular solar panels toward a solar roof, which embeds solar panels inside metal shingles.

That solar business grew to 205 megawatts last year, an 18% growth over the prior year. And Musk said more is coming.

“We do expect to become the market leader in solar and go far beyond that,” he said.

Musk wants a break

Musk, who in addition to his responsibilities at Tesla is the founder and chairman of SpaceX, a leading space-exploration company, said that the burden of Tesla is wearing on him.

“The sheer amount of work to be CEO of Tesla is insane,” he said. “It would be nice to have a bit more of free time on my hands, rather than working morning to night.”

Nonetheless, asked how long he planned to stay on at Tesla, he said his tenure at the 17-year-old company would last “a number of years.”