Summary: Tesla continued to deliver record EV sales in the first quarter of 22 years. However, its Shanghai Gigafactory production at FQ2'22 will be affected by the pandemic. As a result, we expect a small drawdown after its FQ2'22 earnings call, which will be a more attractive entry point for TSLA investors.
Tesla announced its results for the first quarter of 2022 on April 20, 2022. Tesla delivered a record 310,000 vehicles in the quarter, up 0.45% sequentially and 67.7% year-over-year.
Given that its Gigafactories in Berlin and Texas have already started deliveries in March and April, respectively, we expect record production and deliveries in the second quarter of 2022. However, a reduction in production at its Shanghai gigafactory by at least 25% could have a negative impact.
While Dan Ives, managing director of equity research at Wedbush Securities, has said that TSLA's delivery figures at FQ1'22 look rosy, we're not sure the rally in current results will survive the ongoing uncertainty.
Supply chain issues are high, Tesla delivery targets or daydreams?
Despite the closed-loop system, we expect TSLA's Shanghai Gigafactory to face more hurdles. First, the company reportedly only had access to one week's worth of production inventory, resulting in single-shift operations instead of the usual double-shifts.
As a result, the factory can currently assemble only 1,000 cars per day. TSLA will lose about 80,000 production units, including 50,000 in the first three weeks of April.
On the other hand, David Zhang, a researcher at North China University of Science and Technology, estimates that the continued shutdown of supplier factories will lead to a scarcity of parts, and the recovery of logistics will still be slower than the installed capacity of TSLA's Shanghai Gigafactory.
Although Elon Musk "assured" his Shanghai Gigafactory in the second quarter of fiscal 22 that it would still produce the same output as the first quarter of fiscal 22 in the second quarter of fiscal 22, no one will believe it.
The CEO of Xiaopeng Motors even reported that all Chinese automakers must suspend production by May. In the coming weeks, production by automotive suppliers and assemblers across the country has gone out of sync.
Although the HKA had expected losses of up to 40% in automobile production, we believe that its estimates are quite conservative given the current situation.
In addition, Elon Musk estimates total vehicle deliveries in fiscal 2022 to be between 1.4 million and 1.5 million units, with an annual growth rate of 50 to 60 percent, and its four gigafactories have more than 2 million installed capacity. But global supply chain issues in 2022 remain a problem for the world's largest electric vehicle maker, as its plants have been undercapacitated for several consecutive quarters.
In our view, TSLA's goal may be to balance Outsizing Shanghai's reduced production through its two newest gigafactories in Berlin and Texas. However, with global shortages of chips and raw materials, we doubt that the resulting capacity can replace Shanghai's efficient capacity of 2,000 vehicles per day.
Peter Wennink, CEO of ASML Holding, also said that demand for semiconductor chips has greatly exceeded supply and production capacity, and some companies have responded to the growing demand by removing chips from washing machines.
As a result, we expect TSLA production in Berlin and Texas to experience similar problems, delaying its acceleration schedule and further extending its vehicle waitlist.
Still, assuming TSLA can successfully ramp up production in Berlin and Texas in the second half of 2022, while the Shanghai plant resumes normal operations, the company is likely to meet its goal of delivering 1.5 million vehicles by the end of the year.
Analyst Dan Ives said that we believe that the delivery of 1.5 million vehicles this year is achievable and may be exceeded, but achieving the target requires guaranteeing that no more production will be stopped from the second quarter.
Profitability has improved significantly, and Tesla's production and sales growth can be expected
TSLA reported FQ1'22 revenue of $18.75 billion, up 5.81% sequentially and 80.4% year-over-year. Its net income also increased more than sevenfold year-over-year, from $440 million in FQ1'21 to $3.3 billion in FQ1'22.
This was mainly due to the growth of its operating margin from 5.7% to 19.2%. However, we expect TSLA's operating leverage to be adjusted downwards as it will need to take into account capacity increases at the Texas Gigafactory and Berlin Gigafactory in the second quarter of 2022.
Nonetheless, we believe the company will be able to hold on to yields as it has adjusted its ELECTRIC vehicle pricing in line with inflation and increased costs of raw materials. However, it must also be noted that the price increase is only related to the next few quarters, since the reported revenue is based on orders from previous quarters.
TSLA revenue, net income and operating margin
TSLA projected revenue, net income and EBIT margins
TSLA is expected to grow its revenue at a staggering COMPOUND annual growth rate of 33.23% over the next five years. For fiscal year 2022, Consensus estimates that the company will report revenue of $86.1 billion and net income of $14.2 billion, representing a year-over-year increase of 60 percent and 257 percent, respectively.
In addition, its EBIT margin is expected to grow from 12.1% in fiscal 2021 to 16.1% in fiscal 2022. Therefore, although the Shanghai Gigafactory is facing temporary headwinds, Tesla is still expected to achieve excellent results this fiscal year.
Looking ahead, we also expect TSLA to further increase its capital expenditures as it continues to ramp up its manufacturing capacity to meet its long-term annual production target of 20 million vehicles.
Given that the company delivered just 1 million vehicles in fiscal 2021, we also expect Tesla to grow broadly over the next decade.
TSLA 3-year EV/NTM revenue
The above conclusion is based on TSLA's current EV/NTM revenue of 10.87 times, only 8.76 times higher than its 3-year average. Given its excellent execution at FQ1'22, consensus estimates still see TSLA shares as attractive. The stock is currently down about 23.6% from a 52-week high of $1243.49.
Of course, since TSLA is trading above its 50-day and 100-day moving averages, we encourage tech investors to be patient.
In our view, the stock could retrace in July, when TSLA reports on its second-quarter car deliveries, which will certainly reflect reduced production at its Shanghai Gigafactory.
As such, it will create a more attractive entry point for TSLA long-term investors.