Head of Equity Strategy
Summary: Tesla is just outdoing the competition with record profits and revenue growing 81% y/y despite supply constraints. The carmaker's gross margin is now solidly the best in the industry, but part of that lead is from selling its autopilot software for $12,000 a piece which boosts gross margin. While Tesla's investors are pleased with the result and the outlook for deliveries to continue growing around 50% annualised in the coming years, a potential NHTS crackdown on the autopilot system is a major risk to profitability as Tesla is betting software will drive profit growth in the future.
Tesla shares gain 7% in pre-market on Q1 results
Last night after the US market close, Tesla reported Q1 2022 results hitting a new record with revenue at $18.8bn vs est. $17.2bn up 81% y/y and gross margin hitting 29.1% vs est. 25.8%. Free cash flow hit $2.2bn vs est. $672mn with free cash flow at $7bn over the past 12 months translating into a free cash flow yield of just 0.7%. Investors were excited about the results sending the shares up 7% in pre-market trading. Here are the key takeaways from the Q1 results:
The quarterly result should for now mute the skeptics on Tesla, but in classic Musk style the supply issues were brushed aside as a concern not something that could impact deliveries. This is potentially a dangerous expectation game to play with investors as it would seem unlikely that Tesla can continue to escape supply issues compared to the competition as the company has broken through the 1 million annual car production figure.
Another key risk to be aware is related to Tesla’s autopilot software. In an Bloomberg article yesterday it was highlighted that regulatory scrutiny of Tesla’s autopilot system is increasing and a severe crackdown or ban of selling it could severely impact profit growth at Tesla. This is probably the main risk Tesla investors are facing today.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
