Daily Brief: Tesla Just Posted A Record-Breaking Profit. No Surprises There, Then.

Daily Brief: Tesla Just Posted A Record-Breaking Profit. No Surprises There, Then.

almost 2 years ago3 mins

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Tesla posted a record quarterly profit earlier this week, to absolutely no one’s surprise.

What does this mean?

Tesla’s results were always going to be good after the EV maker announced a record-breaking quarter for deliveries earlier in the month. But they were better than just good: Tesla revealed that it made 87% more from EV sales last quarter than the same time last year. It earned more from each sale too, having upped its average sales price and cut its costs. That helped its profit grow an eye-watering 658% from the same time in 2021. And while Tesla admitted that the shutdown of its Chinese factory might cause problems, it also said its new factories in Berlin and Austin should still allow it to produce 1.5 million vehicles this year. That would beat its long-term year growth target of 50%, so no surprises here either: investors sent its stock up 6%.

Tesla stock
Source: Google Finance

Why should I care?

For markets: Credits where credits are due…

Tesla has another money-spinner in its back pocket: selling carbon credits to other carmakers. See, carmakers buy credits to offset their emissions if they’re not going to meet regulatory standards. But since Tesla produces so many more zero-emission vehicles than regulations require, it receives credits from some governments. It’s then able to sell them on, just as it did last quarter: credit sales brought in $679 million in extra revenue – more than twice as much as the quarter before.

Tesla results

Zooming out: Musk is boring.

If you think Musk is just focused on ruling the roads, you’re sorely mistaken: his tunneling startup Boring Co. – which aims to “solve traffic” by building transportation networks in deep underground tunnels – raised nearly $700 million in funding this week, valuing the company at around $6 billion. Boring is planning to use the cash to boost hiring, develop new projects, and speed up development of its next-generation tunneling machines.

Keep reading for our next story...

American Airlines Announced Better-Than-Expected Results

American Airlines image

American Airlines announced better-than-expected results on Thursday, as the aviation industry finally wakes up to the brighter tomorrow it’s been waiting for.

What does this mean?

American Airlines has shaken off Omicron with aplomb, reporting that March was its first profitable month since last July, as well as the first month where revenue came in above pre-pandemic levels. Last quarter’s revenue, then, came in more than twice as high as it was the same time last year. This was partly down to the fact that business travel bookings – some of the company’s most profitable flights – hit their highest level since Covid arrived, while international travel demand had picked up considerably by the end of the quarter too. American Airlines is now predicting it’ll return to profit this quarter, which was all investors needed to hear: they initially sent its stock up 11%.

American Airlines stock
Source: The Wall Street Journal

Why should I care?

For markets: Airline stocks are flying high.

American Airlines’ promising forecast isn’t a one-off: both United Airlines and Delta Air Lines have said in the past week that they’re expecting to return to profit this year. It’s an encouraging sign that the entire industry could finally be making a comeback after two years of restrictions and brushes with bankruptcy. That might be why an index tracking some of the worlds’ biggest airlines and plane manufacturers is up 15% in the past two weeks.

The bigger picture: Fail to prepare, prepare to fail.

Demand might finally be coming back, but there could be another bump in the runway in the form of blistering fuel costs. Case in point: American Airlines’ fuel costs were 65% higher last quarter than they were the year before. In fact, every 1 cent increase in price per gallon is estimated to increase its annual costs by $40 million. And while some airlines lock down the price of fuel months in advance, American Airlines – along with Delta and United – hasn’t, suggesting its profit could end up falling short.

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