Tesla takes earnings from COVID, sells 75% of bitcoin holdings

By Chris Isidore, CNN Business

Shutdowns caused by the Covid surge in China caused sales and profits to fall at Tesla compared to the first three months of the year, the first time since the pandemic emerged in early 2020 that the company did not report a record profit.

Tesla reported adjusted revenue of $2.6 billion in the second quarter, down from $3.7 billion in the first quarter, but $1 billion more than it earned a year earlier. Revenue of $16.9 billion in the quarter was down 10% from the first quarter, but was up 42% from a year earlier.

Earnings were better than forecast by analysts surveyed by Refinitiv, while revenues were slightly below expectations.

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It also disclosed that it had sold 75% of its bitcoin holdings, which it said added $936 million in cash to its balance sheet. CFO Zachary Kirkhorn said the company profited from the value of those sales, despite the sharp drop in the value of Bitcoin in recent months. But the company’s overall profit took a $106 million hit from the lower value of its remaining bitcoin holdings.

CEO Elon Musk said the bitcoin sale was due to the need to have extra cash on hand to deal with the shutdown of the Shanghai facility.

“So it was important for us to maximize our cash position, given the uncertainty surrounding the Covid lockdowns in China,” he told investors on a conference call on Wednesday. “We are certainly open to increasing our bitcoin holdings in the future, so this should not be taken as a judgment on bitcoin.” Tesla has not sold any of its dogecoin holdings, he added.

Tesla revealed a $1.5 billion investment in bitcoin in February 2021. The cryptocurrency has lost about 50% of its value so far this year.

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Despite the attention that Tesla’s cryptocurrency holdings have received, Musk said that moving the world toward sustainable energy is not at the core of the company’s mission. He called the company’s cryptocurrency holdings “a sideshow to the sideshow.”

Musk has gained more attention recently from his efforts to buy Twitter, and his recent legal battle to get out of a deal he agreed to in April.

During Wednesday’s call, he was asked if he expected to change his role at Tesla or how much time he spends focused on the company over the next three to four years.

“I’m committed to the long term,” he said. “I will work at Tesla as long as I can profitably advance the cause of sustainability and autonomy.”

The company’s factory in Shanghai had to halt production for most of the quarter due to mandatory lockdowns in the city to combat a surge in Covid cases. Shutdowns across China also brought sales in the country, the biggest market for car sales, to near zero and disrupted the flow of parts from suppliers whose factories were closed by Covid measures.

Tesla opened a factory in Texas early in the quarter and another in Germany at the end of March. But the escalation plans for these places was affected by supply chain issues, leading to Musk said during an interview in late May that the two plants could only achieve a “small” production of cars that made them “giant money furnaces. Right now there’s a giant roaring sound that’s the sound of money on fire.”

In Wednesday’s earnings report, the company’s view of the production of these two facilities was far more positive.

The German plant “reached an important milestone of over 1,000 vehicles produced in a single week, while achieving positive gross margin during the quarter,” the company said. Earlier, Tesla had said that June was the highest vehicle production month in Tesla’s history.

In comments to investors on Wednesday, Musk described the quarter as “kind of supply chain hell.”

“But despite all these challenges, it was one of the strongest quarters in our history,” he said. Tesla has “the potential for a record second half”, although he warned that bullish forecasts were “obviously subject to force majeure, things beyond our control”.

“Currently [few] years have been quite a few force majeure,” added Musk.

Tesla has a goal of growing global sales by 50% or more annually for the foreseeable future, and earlier this year Musk said that Tesla is expected to be “comfortably above” that goal by 2022. The company built and sold just under 1 million cars last year, so a 50% increase would represent about 1.5 million cars, but ended the second quarter having built and sold about 560,000 cars. Tesla needs to increase production in the second half of the year by more than 75% to reach this 50% growth target for this year.

Still, even with production and sales issues in the second quarter, CFO Kirkhorn said Tesla is “still pushing” to meet that goal, an effort that “has gotten more difficult, but it’s still possible with strong execution,” he said.

Shares of Tesla were slightly higher in aftermarket trading immediately after the report. The share is down 30 percent for the year.

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