TSLA Tesla Inc

By Tim Higgins 

Tesla Inc. reported a surprising first-quarter profit, fueled by the sale of regulatory tax credits and strong demand for its Model 3 compact car before the coronavirus pandemic shut down the company's lone U.S. factory in late March.

The electric-car maker said Wednesday it is too soon to say how the rest of the year might be affected by efforts to quell the spread of Covid-19, which have roiled automotive markets globally and raised concerns of a prolonged recession.

"It is difficult to predict how quickly vehicle manufacturing and its global supply chain will return to prior levels," the company said. "Due to the wide range of potential outcomes, near-term guidance of net income and free cash flow would likely be inaccurate. We will again revisit our 2020 guidance in our Q2 update."

The Silicon Valley company's first-quarter adjusted profit of $1.24 a share marked the first time in Tesla's 16-year history that it has recorded three consecutive quarters of profitability. The result also defied industry analysts, who on average, expected an adjusted loss of 28 cents a share.

The closely tracked earnings metric excludes stock-based compensation. On a net basis, the company reported a profit of $16 million attributable to common shareholders.

The quarter was a dramatic improvement from a year ago when the company posted a first-quarter loss of $702 million as Chief Executive Elon Musk struggled to export the Model 3 for the first time and the company saw an erosion of demand in the U.S.

The latest quarter was helped by an uptick in the sale of regulatory tax credits that Tesla receives for selling electric vehicles. Revenue from those sales to competitors -- which is essentially purey profit -- rose to $354 million from $216 million a year earlier.

The company's shares climbed more than 8% in after-hours trading.

Mr. Musk spent last year setting up Tesla for continued growth in 2020 with the opening of a new factory in China and the introduction of a Model Y compact sport-utility vehicle that combined were expected to fuel the auto maker's first full-year profit.

That growth has been in question as pandemic lockdowns shut down businesses and commerce for much of the world. Tesla's U.S. assembly plant in Fremont, Calif., stopped production on March 23 under orders from local government.

Mr. Musk had aimed to resume production on May 4 but those plans were thrown into disarray when authorities in the San Francisco area on Monday extended the shutdown for businesses through the end of May.

Over the weekend, some factory employees were instructed to report to work this week only to be told to wait for further word on when to show up, workers said.

Tesla said it has the factory capacity in place to deliver more than 500,000 vehicles even with the production interruptions.

"For our U.S. factories, it remains uncertain how quickly we and our suppliers will be able to ramp production after resuming operations," the company said Wednesday. "We are coordinating closely with each supplier and associated government."

After raising more than $2 billion in cash in February, the car maker ended the first quarter with $8.1 billion on hand. The company said in March its cash cushion was enough for it to weather the economic uncertainty.

"While near-term cash flow guidance is currently on hold, we are continuing to significantly invest in our product road map and long-term capacity expansion plans as we have sufficient liquidity," Tesla said Wednesday.

The company's free cash flow turned negative after a positive last three months of 2019. The first quarter's rate of burn, almost $1 billion, exceeded the $516 million expected by analysts surveyed by FactSet.

Tesla attributed the swing primarily to the interruption of operations at the end of the quarter as the coronavirus crisis exploded. It also faced increased spending during the period as it brought Model Y production online in Fremont and work at the new China factory.

Mr. Musk has been critical of lockdowns, and Tesla initially tried to keep its Fremont factory open despite government instructions. On Twitter late Tuesday night, Mr. Musk vented his frustrations, writing: "FREE AMERICA NOW."

Deliveries of Tesla vehicles in the quarter rose 40% to 88,400, helping boost revenue to $5.99 billion from $4.5 billion a year earlier. Analysts had predicted revenue of $6.1 billion.

The company said its revenue was constrained during the period "by limitations on our ability to deliver vehicles towards the end of the quarter."

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

April 29, 2020 18:26 ET (22:26 GMT)

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