The analysts were wrong. The majority of them, terribly wrong.
As the faithful flicked through the Tesla results for Q3 2021 it was a “told you so” moment.
Like Michael Burry in reverse, the diamond hands and hodlers of Tesla’s loyal shareholder base sit back – vindicated – as the shorters run for the hills.
Top-line, the results were record-breaking.
Revenue for the quarter hit $13.76 billion, up 58% year-on-year. This translated to a record net profit of $1.62 billion, up 388% year-on-year. It’s the second quarter in a row in which profits have surpassed the billion dollar mark.
But, below the line is where the numbers leave no doubt – proving this is a meme stock no more.
It’s time to admit Telsa and Musk are the real deal
Most entrepreneurs can make a lot of money by spending a lot of money. But profit margins are what separates the best from the rest.
Tesla’s (NASDAQ: TSLA) margins continue to rise and are now some of the best in the auto industry.
For Tesla’s automotive division, gross margins have now hit 30.5%.
Overall, the business now maintains a robust gross margin of 26.6%.
Compare this to incumbents competing in the EV space:
Volkswagen Group’s (FRA: VOW) current operating return on sales is at 9.3%
Ford Motor Company’s (NYSE: F) adjusted EBIT margin currently sits at around 9.4%
Korea’s Hyundai Motor (KRX: 005380) operates with a profit margin of around 6.2%
While, the most recent financials of China’s leading EV manufacturer, BYD Company, show gross auto margins of just over 20%.
Concept stock no more, China at the fore
Tesla’s deliveries prove this is a so-called concept stock now firmly embedded into the daily realities of many tens of millions across the world.
Again, beating analysts expectations, 241,300 vehicles were delivered during the quarter up 20% on Q2 and 73% year on year.
So with fundamentals in rude health the big question now is, can Musk gain a stranglehold on the Chinese market – the world’s biggest market for EVs?
The odd couple? Musk and Xi Jinping
At a time when China is doing all it can to protect consumers for greedy profiteering billionaires, could Musk be the unlikely character that breaks the chain and wins over Xi Jinping?
After all, he’s not your typical billionaire and arguably has a penchant for “common prosperity”.
Musk is the type of guy who built a giant battery in Southern Australia, millions of miles away from home, after seeing on Twitter that the entire region was blacked out back in 2016.
Come to think of it, right now China could do with a hand in that area too.
Back to EVs.
Tesla is doing what few other US companies are right now – growing operations in China, seemingly without interference form the Chinese Communist Party.
The significance of this can not be overstated.
Tesla’s Shanghai gigafactory is hitting top gear and achieving scale. More Tesla vehicles are now produced in Shanghai than California and at a very efficient cost.
China Passenger Car Association data shows Tesla shipped over 133,000 vehicles from Shanghai during the quarter.
“For all of Q3, China remained our main export hub,” Tesla’s chief financial officer, Zach Kirkhorn, said in today’s earnings call.
“Production has ramped well in China, and we are driving improvements to increase the production rate further.”
It’s also one of the few US brands being embraced by the Chinese, as consumers and Government preferences switch to domestic brands.
Somewhat ironically, when in comes to EV sales in the domestic China market, the one company standing in its way of domination is the Warren Buffett-backed BYD Company.
Tesla is second to BYD when it comes to EV sales in the mainland.
Read about BYD Company’s rise in China’s EV landscape in this recent Asia Markets article.
If Tesla’s staggering progress in China amid simmering geopolitical tensions and increasing regulatory pressures is anything to go by, maybe Musk can do anything.
He certainly is no Moron, and Tesla is no meme.
Share your thoughts on the latest Tesla results and the company’s progress in China with us in the comments section below or find us on Twitter at the handle @asia_markets.