China Remains Tesla's Key to Growth

Shares of the world's most valuable car company fell 4% after top and bottom line beat.
Anthony RussoApr 27,2021,16:09

Shares in Tesla (Nasdaq: TSLA) dropped 4% in early trading Tuesday after posting a top and bottom-line beat for the first quarter.

The world’s most valuable car company said in a statement Monday after the markets closed revenues in the quarter jumped 74% year-over-year to $10.39 billion on earnings 93 cents per share. Analysts polled by Refinitiv were expecting revenues of $10.29 billion on earnings of 79 cents per share.

The electric vehicle giant in the quarter saw big demand from Chinese consumers in the quarter, delivering 184,800 Model 3 and Ys.

In a letter to shareholders Monday, Tesla repeated that it expects to average 50% annual growth in the deliveries over a multi-year horizon. To meet that goal, Tesla plans on accelerating production at its Shanghai Gigafactory. That plant just started delivering cars to consumers in 2020. Also, two new U.S. facilities are expected to start deliveries this year.

"In some years we may grow faster, which we expect to be the case in 2021," Tesla said.

Further, "The rate of growth will depend on our equipment capacity, operational efficiency and capacity and stability of the supply chain."

Wedbush analyst Dan Ives thinks China could account for 40% of Tesla’s global deliveries as early as 2022.

"Tesla continues to see growing pent-up demand throughout China and Europe, with the U.S. on the verge of seeing a further inflection in demand in our opinion once the EV tax credit ceiling is lifted," Ives wrote in a note before Tesla posted its earnings report, as cited by Yahoo! Finance.

Currently, Ives rates Tesla as buy, with a price target of $1,000 per share.

Meanwhile, Tesla’s record quarterly profit of $438 million was driven by its $1.5 billion bet on bitcoin and making $518 million by selling emissions credits to other automakers.

But why did Tesla’s stock price drop early today anyway? For one, there’s been a lot of volatility involving growth stocks over the past couple of months or so. Two, investors might be worried about the price of bitcoin dropping further from its heights; Mott Capital warned that the price of cryptocurrency could fall in the range of $42,000 and $43,000.

Or three, global chip shortages concerns--which has hurt the entire auto industry this year in regards to production. While Tesla was able to navigate through the problem, billionaire chief executive officer Elon Musk noted that the company faced "insane difficulties" with its supply chain in the first quarter.

Shares in Tesla are up 1% year-to-date. The world's most valuable car company will look to continue to grow in China.

Topics:Tesla, Elon Musk.