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Tesla Hits Record Production, Deliveries Despite Global Semiconductor Shortages
Nowadays a cloud hangs over automakers and it’s made of silicon. A global semiconductor shortage has plagued the auto industry, which needs chips for infotainment systems, engine management for better fuel economy, as well as braking and steering. With news that older automakers as well as Chinese electric vehicle maker NIO (NIO) have stopped production due to the lack of chips, Tesla (NASDAQ: TSLA) production and delivery numbers are at record highs. Tesla halted production at its Fremont, California facility for two days in February because CEO Elon Musk described it as a “shortage of parts.” He didn’t go into which parts were short, but on the company’s fourth quarter earnings conference call, TSLA’s CFO said, “We are working very hard to address the global semiconductor shortage and port capacity.” The global chip shortage appeared to be worsening for TSLA as Samsung Electronics shut down production in February at a plant in Austin, Texas, which, according to Reuters, had previously made chips for the electric vehicle maker, according to TSLA. This interruption came when severe winter weather caused power outages. While next week investors will likely be eager to learn more about how Tesla is handling the chip shortage, there appears to be some evidence for the earnings release on Monday. FIGURE 1: ADDITIONAL JUICE. Although the return of the S&P 500 Index (SPX – purple line) was no cause for sneezing over the past 12 months, it pales in comparison to stocks of Tesla (TSLA – candlestick). One period of increased interest in the stock was TSLA’s entry into the SPX in December 2020. Data sources: S&P Dow Jones Indices, Nasdaq. Diagram source: The thinkorswim® platform. For illustration only. Past performance does not guarantee future results. Record shipments despite chip shortages earlier this month, Tesla announced it had shipped 184,800 vehicles. Almost all of the record numbers came from shipments of the Model 3 and Model Y, with only 2,020 of the more expensive Models S and X being shipped from inventory and no new ones being produced. Both the S and X models need to be upgraded and are in the early stages of production ramp-up. So it seems possible that TSLA was able to prioritize chips for 3 and Y models. Investors should keep in mind that the higher-volume 3 and Y models won’t make as much profit as the more expensive S and X models. There may also be other reasons Tesla is weathering the chip shortage better than other automakers. “Other automakers buy much less valuable silicon content and have less priority compared to Tesla, who designs chips in-house, takes care of wafer supplies directly from foundries and buys chips directly from the various chip designers such as NXP, Infineon, etc.,” said one Note from Cho Research. “They don’t outsource the design of their stack of chips. They source wherever possible and work extremely closely with their suppliers. “Allied with a tweet about good supplier relationships after the latest production and delivery numbers came out, Musk said,” Thank you Tesla suppliers for providing us with vital parts! “Fatal crash, Chinese PR Current Quarter Headache In addition to the chip shortages, Fremont closure, and port capacity issues, TSLA’s first quarter appears to be potentially affected by a fire at its Fremont, Calif. Facility, although this is still the case whether this is material enough for executives to discuss next week. Show More Revenue at TSLA TSLA also seems to be experiencing some speed fluctuations lately. While this happened in the second quarter – after the first quarter reporting period – investors may be hoping for more clarity from executives over the next week. TSLA recently got a black eye when a customer complaint went viral in China and stumbled upon the company in response. The company has been in the crosshairs of Chinese media and regulators, but its cars are still very popular in China and stocks don’t seem to have suffered much. Authorities in the US are also monitoring TSLA after a fatal crash involving a Model S in Texas. The National Highway Traffic Safety Administration and the National Transportation Safety Board have launched investigations into the incident that have been examined by lawmakers. The crash again draws attention to the extended driver assistance function of TSLA Autopilot. Consumer reports this week said it was possible to get a Model Y’s autopilot system to drive the car even when no one was in the driver’s seat. Musk tweeted that data logs showed that autopilot was not engaged in the crash in Texas and the car was not purchasing a separate full self-driving system from TSLA that also needs human monitoring. He also said that cars operated with the autopilot on are nearly ten times less likely to be in an accident than the average vehicle. The Way Forward If you recall, TSLA sales were above expectations for the last quarter, but earnings fell to $ 0.80 from a consensus expectation of $ 1.03. Investors were also disappointed that the company failed to provide clearer guidance on this year’s delivery expectations. The company later said: “Over a period of several years, we expect an average annual growth in vehicle deliveries of 50%. In a few years, we may grow faster, which is what we expect in 2021. “According to an estimate on the back of the napkin, that could mean 750,000 deliveries this year, but the formulation is not as catchy as the forecast for 500,000 vehicles for 2020, which was only marginally missed. And investors may want to see more precise guidance this time around. If TSLA faces increasingly serious impacts from global chip shortages this quarter, it could hold production back in a time when automakers could see increased demand, at least domestically, as the pandemic subsides, travel opens up, and people get stimulus money and spending money have better prospects for the economy and their jobs. In the long term, the increasingly crowded field for electric vehicles appears to be a challenge for Tesla. The EV market has become denser, with renewed interest not only from older automakers and EV startups, but also from major tech players Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN). Currently, TSLA is still in the driver’s seat for its place in the electric vehicle market. TD Ameritrade® commentary for educational purposes only. Member of SIPC. Options involve risks and are not suitable for all investors. Please read the characteristics and risks of standardized options. 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