Don’t cry, Tesla: small loss from cryptocurrency trading, big profit from car sales

Author | Zhou Jifeng

Editor | Liming

Tesla released its second quarter 2021 financial report.

Data shows that Tesla's second-quarter revenue was US$11.958 billion, up 98% from US$6.036 billion in the same period last year; net profit was US$1.142 billion.

The net profit figure is surprisingly high, more than double the net profit of $438 million in the first quarter and more than 10 times the net profit in the same period last year. It is worth noting that this quarter, Tesla's carbon credit revenue was only $354 million. Even without this revenue, Tesla still made a profit by selling cars and energy products.

Such growth is mainly due to Tesla's soaring car production and delivery. The company produced 206,000 electric vehicles in the second quarter, a year-on-year increase of 151%; a total of 201,000 vehicles were delivered, a year-on-year increase of 121%, of which Model 3 and Model Y accounted for a total of 199,000 vehicles, a year-on-year increase of 148%.

But Tesla is still facing crises. CEO Musk previously promised to achieve plans this year, such as mass production of 4680 batteries, building new factories, and launching new Cybertruck models, but none of them have been realized so far. New projects are already behind schedule, and in China, Tesla is mired in negative public opinion and is unable to extricate itself.

After the financial report was released, Tesla's stock price rose only 0.99% in after-hours trading. However, Musk still did what he wanted and was confident in the company. Musk said in Tesla's second quarter earnings conference call that he might no longer attend quarterly earnings conference calls in the future, "unless there is something very important for me to say."

In the second quarter of 2021, Tesla's delivery volume hit a new high of 201,200 vehicles. This is also the first time that Tesla has delivered more than 200,000 vehicles in a quarter . Together with the 184,800 vehicles delivered in the first quarter, the total delivery volume of Tesla electric vehicles in the first half of the year reached 386,000 vehicles, which is a very good result and has completed half of the annual delivery target of 750,000 vehicles.

But the situation in China is not optimistic. Tesla's financial reports usually only disclose global data. According to the China Passenger Car Association, Tesla's retail sales in June were 28,138 vehicles, an increase from 21,936 vehicles in May.

But it still failed to return to the level of March. Tesla delivered 35,478 vehicles in March this year, setting a record. But in April, the "brake failure" rights protection incident occurred. Since then, Tesla's sales in China have begun to decline, especially in April, when sales plummeted by 67%, with only 11,671 vehicles delivered that month.

Due to the decline in sales in the past three months, Tesla's retail sales in China in the second quarter of 2021 were 61,700, a decrease of 10.87% from the first quarter. The sales of other electric vehicle brands are catching up rapidly. For example, BYD delivered 40,317 new energy vehicles in June, and SAIC-GM-Wuling delivered 31,285 vehicles in June.

In June, the monthly delivery volume of NIO, a new domestic car manufacturer, exceeded 8,000 units (8,083 units) for the first time, a year-on-year increase of 116.1%. These younger brothers that Tesla once disdained have now risen and even begun to seize Tesla's territory.

Source: Company website, China Passenger Car Association

The negative public opinion about the safety accident did have an impact on Tesla's second quarter Chinese market. Investors and analysts are waiting to see whether Tesla can handle the public opinion crisis in the Chinese market. " For Tesla, China's growth story is the most important ." Securities analysts at Wedbush Securities once pointed out: "This is Tesla's main market, and we believe that 40% of their sales next year will come from there. I think this is the key to whether the stock price will rise or fall."

In order to stay in China, Tesla is "making up for lost time". For example, on June 26, Tesla planned to recall 285,000 imported Model 3 and domestically produced Model 3 and Model Y, and for the first time ever, it expressed deep apologies for the recall.

Although Tesla has achieved positive profits for several consecutive quarters, there is a lot of water in it. For example, in the first quarter of 2021, Tesla's net profit of US$438 million was supported by US$518 million in carbon emission credit income and US$101 million in profits from Bitcoin speculation.

Source: Company financial report

In the second quarter, Tesla's net profit of $1.142 billion exceeded market expectations, and it was the first quarter that its net profit exceeded $1 billion. When talking about Tesla's financial situation, the key words that cannot be avoided are carbon emission credit income and Bitcoin speculation.

In the first quarter, Tesla earned $101 million from speculating in cryptocurrencies. But the price of Bitcoin has fallen by about half since its peak in April. According to the disclosure in the financial report, in the second quarter, Tesla recorded a loss of $23 million due to the plunge in Bitcoin prices . For a long time, Tesla's carbon emission credit income has been high and is an important source of profit.

However, selling carbon emission credits is not a long-term solution. Tesla has now lost a "big customer". Fiat Automobile (FCA), a big customer that bought carbon emission credits from Tesla, announced in January that it would merge with PSA to form the Stellantis Group, introducing PSA's electric vehicle business. As a result, FCA will no longer buy credits from Tesla.

In the second quarter, Tesla's carbon emission credits decreased by 17% year-on-year to only US$354 million, lower than any of the previous four quarters.

Source/ Company financial report

How did Tesla achieve net profit growth after not relying on carbon credits? Selling cars is one aspect. Tesla delivered more than 20,000 Model 3 and Model Y in the second quarter, while Model S sales were only 1,895. The great success of Model Y has obviously boosted Tesla's performance. Tesla's gross profit margin for the entire vehicle is also increasing, reaching 28.4%.

The financial report disclosed that Tesla's supply chain costs are constantly decreasing. In addition, Tesla's greater ambition is to sell software . Guotai Junan Securities Research believes that Tesla's future profit model is very certain. It makes the hardware price very low, basically selling it at cost price, and making profits more through charging the back-end software market.

Today, Tesla is gradually realizing its plan to sell software. In early July, the long-awaited "Full Self-Driving (FSD)" system of Tesla owners was officially opened to the public. The system is called beta 9.

Recently, Tesla launched a fully autonomous driving subscription package, which costs $199 per month for new users. Previously, Tesla sold the fully autonomous driving package as a one-time full payment of $10,000. Well-known technology analyst Gene Munster wrote in a report that the subscription option could accelerate the adoption of FSD.

This is an important step on Tesla's long-term path to higher profit margins and will strengthen the company's operating model.

Tesla's performance in the first half of the year was impressive, but it cannot rest on its laurels. To achieve its sales growth target of 50% this year, Tesla must accelerate its global layout and production. In the second quarter, Tesla delivered several messages through a conference call. First, the Shanghai Super Factory completed its transformation as the company's main automobile export hub.

The Shanghai factory is supplying Tesla's global market. The next question is, when will Tesla's two major factories in Berlin and Texas start production? The Berlin Super Factory in Germany is Tesla's fourth super factory. According to the plan, after the official production of the Berlin Super Factory in Germany, it will be used to produce batteries, power systems and complete vehicles (starting with the production of Model Y).

The focus of the first phase of the plant is the production of Model Y, with the goal of producing 10,000 vehicles per week. In addition, the 4680 battery may be mass-produced first in Berlin, Germany. Musk once said that he plans to increase the annual production capacity of the battery production plant in Berlin to 100GWh, which may be expanded to 200 to 250GWh. 100GWh is more than twice the output of Tesla's Nevada plant, the world's largest battery factory.

Tesla originally expected the Berlin plant to start production in July 2021. However, the Berlin plant has been delayed in passing the review. Model Y, 4680 power battery and other plans have to be shelved. In the conference call, Musk responded rather vaguely that the Berlin plant will start production of Model Y later this year.

As for when exactly it will be late, Musk did not reveal it. The Texas factory in the United States has developed rapidly. In Musk's words, "A year ago there was nothing, and a year later there was an almost complete large factory."

The conference call revealed that the Texas plant has started partial commissioning and will also produce Model Y later this year. The market is more concerned about how far the 4680 battery has progressed? The so-called 4680 battery, as the name suggests, is a cylindrical battery with a single cell diameter of 46mm and a height of 80mm.

In an interview, Akiaki Nagasaki, Panasonic's head of electric vehicle battery business strategy, pointed out that new batteries like the 4680 battery are "the key to the large-scale promotion of cheaper electric vehicles." Cheaper but more efficient batteries are crucial for a fast-growing new energy vehicle company.

Previously, Musk canceled the Model S Plaid+ model with the longest range and postponed the launch of the 4680 battery, which caused market concerns because the model used the 4680 battery.

This time, Tesla delivered good news in the conference call. Tesla said that the development of 4680 batteries "has made significant progress", but "we still have a lot of work to do before we can achieve mass production", especially in improving the manufacturing process of batteries.

In addition, Musk pointed out that Tesla is working with its existing suppliers to produce 4680 batteries for its vehicles. The 4680 batteries have successfully been crash-tested for the new design of its vehicles, and these batteries will be installed into the structural frame . In addition to factories and batteries, Tesla's electric pickup Cybertruck is still a long way from mass production.

Tesla said that it will increase Cybertruck production in Texas only after its factory in Texas starts producing Model Y. The Semi, which Tesla had previously promised to launch this year, has been postponed again to 2022.

Whether the factory can start operation smoothly, whether the batteries can be successfully developed and mass-produced, and whether the next hit car model can be launched , these have become three crucial challenges that Tesla will face next.

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