What The Tesla Record Quarterly Profit Tells Us?

Tesla’s Q1 2022 earnings stunned everyone, except Elon Musk. Not only did Tesla sell more cars in Q1, it increased gross margins on cars sold to a new record 33%!

How did Tesla increase margins on its cars while the world copes with inflationary pressures, thereby knocking product gross margins? Simple. Tesla builds products the consumer desires. Data does not lie.  Tesla hiked prices on its products in Q1, yet consumers still turned out to purchase their cars in record numbers. Musk and his executive team achieved the holy trinity of business: raise prices, improve margins, and still sell more cars. 

Tesla wasn’t always the company we are familiar with today. When Musk took over the CEO’s chair in 2008, Tesla was staring bankruptcy in the face. It certainly didn’t mass produce the world’s first electrical vehicle either. Remember GM’s EV1? Tesla proceeded to emulate the Steve Jobs playbook. Apple did not make the first smartphone. They took an existing idea, improved it, wrapped it up prettily, and turned out a product the consumer demanded. The result? All the other major car manufacturers are playing catchup.  Not bad for a company close to being bankrupt over a decade ago. 

Whether to invest in Tesla or not gets wall-to-wall coverage by every analyst on Wall St. What no one talks about is what will happen to traditional auto parts suppliers, such as Delphi, as EVs replace traditional combustion motor vehicles? GM won’t even be producing EVs until 2035. Remember, an EV is more like a moving computer rather than a traditional car. Have traditional suppliers the ability and nous to pivot and survive? Which new companies will rise to become dominant EV parts suppliers? 

All questions that long-term investors must contemplate to avoid getting caught with the outgoing tide, or end up on the scrapheap beside the internal combustion engine.

CTDI have just released our China Tesla Supply Chain Index, which allows for Chinese equities investors to participate in the success of Tesla, the world’s leading electric vehicle manufacturer, and the overall EV sector.