Tesla’s profit margins held back by Musk’s pay and cheaper models

Tesla topped Wall Street’s expectations for revenue growth in the final quarter of last year but failed to hit forecasts for earnings, sending its shares lower in after-hours trading.

The US electric car maker also retreated from its usual practice of forecasting full-year vehicle delivery volumes. Instead, it said it had “simplified” the way it gives guidance because of “the number of significant projects in the pipeline”, and projected average annual growth in deliveries of 50 per cent over “a multiyear horizon”. It said it expected to grow faster than that in some years, including in 2021.

The pullback in guidance follows several years in which chief executive Elon Musk has promised higher volumes than Tesla has achieved, including a pledge several years ago that it would hit sales of 1m by 2020, twice what it actually managed.

The carmaker had already reported a solid fourth quarter for new vehicle deliveries, contributing to a strong share price rally at the start of the year that has extended the gains from 2020.

It posted better than forecast revenues of $10.74bn for the quarter, up 46 per cent year on year. However, pro forma earnings per share rose 95 per cent, to 80 cents, short of the $1.01 Wall Street had been expecting. The stock was down almost 5 per cent after the figures were reported.

Its operating profit margin of 5.4 per cent was up from 4.9 per cent a year ago, reflecting higher production volumes, but average selling prices dropped 11 per cent because of a shift towards the lower-priced Model 3 and Y.

Another factor limiting the growth in Tesla’s profit margins in the latest quarter included $267m in stock-based compensation for Mr Musk, tied to the giant pay package that was approved by shareholders three years ago.

Tesla’s quarterly net income rose to $270m from $105m the year before. Based on formal accounting rules, including stock-based compensation, earnings rose 118 per cent to 24 cents a share.

The results were boosted by a bounce in sales of regulatory credits to other carmakers. At $401m, this jumped threefold from a year before, bolstering revenues and falling straight to the bottom line. Tesla long depended on such profits — rather than profits from making and selling cars — though it achieved more consistent profitability in its underlying operations in late 2019.

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