Tesla (NASDAQ:TSLA) -1.7% reported better-than-expected results for Q1 2022, with sales increasing 81% year-over-year to $18.76billion and adjusted profits per stock more than doubling to $3.22. Model 3 and Y deliveries increased 68% over Q1 2021.
Increasing manufacturing of the more costly Model S and X variants and putting an emphasis on higher trim levels were key to this success. As a result, this quarter was good for Tesla’s profitability. Gross margins in the auto sector (excluding regulatory credit sales) were over 30%.
That is an increase of 22% from a year ago and 29% in Q4. The profit growth is remarkable due to rising input prices and supply chain constraints. Accordingly, we revise Tesla’s position and raise our price estimate to $1,100 per share. That is a bit more than the current market price.
Although the electric vehicle market is expected to grow in competition, Tesla’s cost advantages, manufacturing capabilities, and strong brand recognition as an early adopter will remain competitive. In addition, the firm has no commercial budget, and orders increased dramatically after the Super Bowl. That was due to the presence of many celebrities promoting electric cars.
To meet the growing demand for Tesla’s electric cars, the company has opened two new plants in Texas and Berlin. Tesla has a track record of exceeding customer delivery expectations. Although the company has stated a goal to increase deliveries by 50% this year, Elon Musk claims that 60% growth is possible.
Despite market headwinds, Tesla’s advantages in production and cost management are becoming more evident. The business optimizes manufacturing, substitutes parts in limited supply, expands economies of scale, and maximizes its manufacturing capabilities. As a result, Tesla’s operating margins in the first quarter of 2022 were 19%, three times the industry average.
There are some drawbacks. Tesla currently trades at more than 90x ZRX +24.4% consensus 2022 profits, for a share price above $1,000 per. Analysts believe that Tesla’s growth supports that assessment. However, investors are moving away from multiple names and towards more value bets that could jeopardize Tesla’s valuation.
Rising raw material costs have raised concerns about the commodities cycle, particularly for batteries. Even though long-term contracts protect Tesla, it will likely feel the effects of rising spot prices because of its huge demand. In addition, investors will not be able to keep up with industry innovation.
Mainstream manufacturers have invested multi-billions of dollars in developing electric vehicle (EV) capacities and development. Although there has been much back and forth, mainstream automakers may be able to offer appealing EVs that are a success with customers. That could shift the narrative about Tesla stock and its price significantly.
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