NEW YORK (Reuters Breakingviews) - Supply chain issues have caught up with Tesla. The electric-car maker reported https://tesla-cdn.thron.com/static/WIIG2L_TSLA_Q4_2021_Update_O7MYNE.pdf?xseo=&response-content-disposition=inline%3Bfilename%3D%22tsla-q4-and-fy-2021-update.pdf%22 $17.7 billion of revenue for its fourth quarter, a 65% increase on the same period a year earlier, but said that it’s having to operate below capacity because of parts shortages while facing higher costs. Those factors could impede the pace at which electric vehicles take over the planet. But since Tesla is more profitable than competitors, even at a lower gear it ought to remain in front.
Elon Musk’s $940 billion auto firm had already hit one speed bump, namely the industry-wide shortage of semiconductors. Tesla handled the situation better than most, in that it increased production by 87% to nearly a million cars last year. But other components and materials are also growing scarce and more expensive. Traditional car companies like General Motors have said they face billions of dollars of increased costs from commodities. Tesla’s electric cars need so-called rare earth metals and lithium, and the company said on Wednesday that pressure on supply will continue throughout 2022.
Where Musk has an advantage is that he sports the financial equivalent of good suspension. Gross profit at Tesla’s core automotive business is 30.6% of revenue, a figure that has increased from 24.1% a year ago, and beats old-guard automakers by a mile. General Motors’ and Ford Motor’s gross margins, for instance, came in at 14.2% and 12% in their most recent quarters, according to Refinitiv.
So in an endurance race to see which automaker can survive higher costs the longest, Tesla would be likely to win. Gross profit margin matters also because it’s a sign of brand allure and therefore pricing power. After all, Tesla has raised prices on customers before while managing to beat analysts’ revenue forecasts – which it did again in 2021 by 7%. Rising costs aren’t good news, but if they put relatively more pressure on rivals, Musk can turn a bad situation to his own benefit.
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CONTEXT NEWS
- Electric-vehicle maker Tesla said on Jan. 26 that it made $17.7 billion in revenue in the fourth quarter of 2021, 65% higher than a year earlier and 7% above analyst estimates, according to Refinitiv. Earnings per share of $2.54 tripled year-on-year, after stripping out the cost of stock-based compensation.
- Tesla’s gross margin was 30.6% in its core automotive business during the quarter and 27.4% overall, above expectations of 26.5% and higher than the 19.2% overall margin from a year earlier.
- The carmaker warned that its factories have been operating below capacity owing to supply chain pressures. Further capacity is expected to come online from new factories in Texas and Berlin, but both plants are still in the equipment testing phase.
(Editing by John Foley and Sharon Lam)
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