While Tesla reported its third-quarter numbers after the market close on Wednesday, its share price did fall around 1.6% in response.
However, as is often the case in stock markets, that initial reaction is no indictment of the overall health of the carmaker’s business.
So, for investors following Tesla stock, here are three key takeaways from its latest earnings.
1. Gross margin boost
While semiconductor and supply chain issues have impacted many automakers, including Tesla, it was encouraging for investors to see that the company recorded a higher gross margin in the third quarter.
Beyond that, Tesla’s core automotive division’s gross margin hit a high of 30.5% and has seen impressive growth so far this year even when you exclude the regulatory credits it receives (see below).
Sources: Company filings, Barrons.com
Tesla’s overall gross margin came in at 26.6%, up from 23.5% in the third quarter of 2020 and was also an improvement quarter-on-quarter from the 24.1% gross margin recorded in the second quarter of 2021.
Higher vehicle deliveries have driven this margin uptrend as Tesla reported third-quarter vehicle deliveries of 241,000 earlier this month – around 5% higher than analyst projections.
2. Record net income and operating profit
Tesla again smashed expectations with an impressive bottom line of US$1.6 billion in GAAP net income, up a whopping 389% year-on-year.
Meanwhile, operating profit hit another record high and was just north of US$2 billion for the quarter. That led to an impressive operating margin of 14.6%, up 534 basis points from the same quarter last year.
3. Cash-rich balance sheet
There’s a difference between raising cash when your stock is riding high and raising cash when the business situation is desperate.
Tesla has mastered the former, having taken advantage of a skyrocketing share price to raise capital on preferable terms – knowing full well it would need it in the future.
That foresight was reflected in its latest quarter’s balance sheet, which is beginning to look “fortress-like”.
Cash and cash equivalents were a whopping US$16.1 billion while debt (excluding vehicle and energy product financing) was US$2.1 billion.
So, with a net cash position of US$14 billion, Tesla is well-positioned to spend big on promising areas of future growth.
Tesla stock on cruise control
It was another solid quarter from the leading EV producer in the world. However, with shares of Tesla up 17% over the past month, some of the enthusiasm could already be reflected in the share price.
Longer term, though, as Tesla’s business continues to scale and generate more free cash flow and profits, it should translate into a rising share price given the still-massive demand for EVs over the next decade.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.