Tesla just had the best first quarter in company history.
Not only did it sell the most cars, it also registered the first profit in that quarter. For the three months ending on March 31, Tesla made $16 million or 9 cents a share. This was against an expected loss of 28 cents according to Factset.
Sales were $5.99 billion, slightly below what was expected.
This sent the stock flying after hours.
Unfortunately, like most companies right now, this only tells part of the picture.
Tesla presently has all of its U.S. facilities shuttered, meaning the only production is coming from China. The San Francisco area saw the lockdown extended which means it is possible no cars are produced in Fremont until June.
Elon Musk was as defiant as ever on the conference call. Unlike the past where this sent the stock plunging, his antics did not deter the price move.
One glimmer of hope for investors is the fact the company still feels confident that it can produce 500K vehicles in 2020. Many were questioning whether Tesla would have to lower their target. China is operating at a level that puts its full year production near 150K. This might be moved up slightly throughout the rest of the year.
At the same time, Tesla is using the downtime to upgrade their production lines in an effort to increase output once things resume. In the past, the company was able to get 3% or more when it made moves of this nature.
All this is taking place in light of an automobile industry that is chaos. It is expected that vehicle sales will drop to 70 million for this year, down from 78 million. Some pegged U.S. auto sales at 12 million for 2020, down from 15 million.
Ford announced earlier in the week it will take a $5 billion hit in the second quarter. Tesla is going to see the same type of situation. One drawback to the numbers is the fact that it had a draw down of cash of over $900 million. This is not uncommon when more cars are produced than sold.
Tesla produced close to 20K more cars in the quarter meaning it has around $900 million in cash it will receive in quarter 2. Nevertheless, with their plants shut down, the cash drain is going to be awful.
Another bright point was the fact that margins increased. This is showing that Tesla is finally becoming a viable business model. Investors watched for years as Tesla struggled in this area.
This was the third quarter in a row of profitability for Tesla. The streak will certainly be broken in quarter 2 as the goal is to make the loss as small as possible. No automaker is going to show a Q2 profit.
For the next couple quarters, cash management is going to be vital. This is something Musk is going to have to show himself adept at doing.
The automakers can only hope that some sort of normalcy returns in the fourth quarter.