Stock of the week - Tesla (27.01.2022)

• Tesla reported Q4 earnings yesterday after session close

• Record sales and profits, better-than-expected cash flow

• Tesla will not launch new EV models this year

• Musk expects chip shortages to improve in 2023

• New factory location may be announced this year

• Tesla works on development of robots

• Shares seesaw in off-session trading

Tesla released earnings report for the final quarter of 2021 yesterday after the close of the Wall Street session. While results for Q4 turned out to be better than expected, guidance offered by the company was a disappointment. Stock was trading 6% lower in the after-hours trading yesterday before paring most of the drop in today's pre-market trading. Let's take a closer look at Tesla's earnings announcement.

Headline Results

As was already mentioned in the introduction, Q4 results of Tesla turned out to be better than expected. Company reported record quarterly revenue at $17.72 billion as well as record net income at $2.88 billion. Better-than-expected profits were the result of higher than expected margins. Free cash flow also surprised to the upside coming in at $2.78 billion. Tesla reported a slight miss in Q4 CapEx. Results for Q4 2021:

• Revenue: $17.72 billion vs $16.57 billion expected

• Adjusted EPS: $2.52 vs $2.36 expected

• Adjusted net income: $2.88 billion vs $2.68 billion expected 

• Automotive gross margin: 30.6% vs 29.9% expected

• Gross margin: 27.4% vs 26.8% expected

• CapEx: $1.81 billion vs $1.83 billion

• Free cash flow: $2.78 billion vs $1.67 billion expected

• Deliveries: 308.6 thousand units

No new models in 2022

However, management's commentary to Q4 results turned out to be much less optimistic than the results themselves. Elon Musk said that semiconductor shortages are likely to continue to pressure Tesla and negatively impact sales this year. Musk said that chip shortages are expected to resolve in 2023 after pressuring EV carmakers for several quarters. As a result, Tesla warned that it will not launch new models this year and focus on production of existing models amid parts shortages. This means that neither Cybertruck, nor the promised $25,000-car will be launched today. On the other hand, Musk said that fully self-driving features will become available this year. In spite of parts shortages, Tesla is confident it will exceed the annual growth target of 50%.

Tesla is looking for new factory location

Executives at Tesla were also asked about production at 2 new factories - Berlin, Germany and Austin, Texas. Musk said that deliveries of cars made at the Austin plant will start after the company receives final certification which is expected soon. Production in the Berlin plant commenced at the end of 2021. Company also wants to expand annual production capacity at its factory in California to 600 thousand units. However, in spite of completing 2 new factories last year, Tesla continues to plan further expansion. Musk said that Tesla is currently scouting for a location of a new factory with possible location announcement coming later this year.

Humanoid robots in development

Tesla has announced a few months ago that it is working on a humanoid robot. Elon Musk said during a recent earnings call that he thinks the product may turn out to have a bigger potential for Tesla than its electric vehicle business as labor is the foundation of the economy and Tesla's robot will help through workforce shortages. No timeline for release of the robot was announced but it was hinted that they will be first used in Tesla's own factories.

Look at the market

Shares of Tesla (TSLA.US) launched yesterday's trading higher but gains were erased by the end of the session following hawkish Fed. Stock dipped further in the after-hours trading as warnings on supply chains from Musk dented sentiment further. Shares traded over 6% lower in the after-hours before recovering most of the drop during European trading hours today. Stock is now expected to launch today's trading little changed.

Taking a look at Tesla (TSLA.US) at D1 interval, we can see that the stock has pulled back to the $890.00 support area during the recent sell-off. This zone is marked with previous price reactions, lower limit of the Overbalance structure and 50% retracement of the upward move launched March 2021. Bulls defended the area and a recovery move was launched this week. Positive reaction to $890.00 support suggests that a bigger recovery move may be looming. On the other hand, if moods deteriorate and stock drops below the $890.00 zone, things may get ugly as the zone also marks the neckline of the double top pattern. Textbook range of the downside breakout from the pattern points to a possibility of a drop to as low as $550.00.

Source: xStation5