Tesla’s profits are growing by leaps and bounds and the growth is even more sustainable

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Electric car maker Tesla (Tesla shares – ticker symbol TSLA) reported strong results in the second quarter, with sales up 42%. The performance was impressive considering the global supply chain and the logistical challenges faced by the automakers. Notably, Tesla’s second-quarter profit exceeded expectations. In addition, the company’s cash flow has increased due to rapid growth in sales and profits.

Tesla’s solid financial results stand in stark contrast to the negative free cash flow the company spent in the years following its 2010 IPO. But things have changed and Tesla’s second quarter 2022 report proves it.

Profits and liquidity

A 27% year-on-year increase in vehicle deliveries nearly doubled the automaker’s own profit. Tesla’s non-GAAP (Generally Accepted Accounting Principles) earnings per share increased 57% year-over-year to $ 2.27, comfortably beating analysts’ forecast of $ 1.81.

Tesla’s auto margin was 27.9%, down just 46 basis points from 28.4% the previous quarter. Investors should welcome this small setback in an environment where companies with global supply chains face ever-changing challenges.

The operating margin even improved to nearly 15% versus 11% in the previous quarter. This key profitability metric was supported by the growth in deliveries, the decline in the average selling price of Tesla vehicles, the reduction in inventory-based compensation costs, and more. This is also due to the fact that the company reported an increase in fixed unit costs in Shanghai during the quarter due to closures related to operating restrictions in the region due to COVID-19.

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All of this great performance means that Tesla’s already large amount of money is getting bigger and bigger. The company ended the second quarter with $ 18.3 billion in cash, cash equivalents and negotiable securities, compared to $ 902 million in the first quarter of 2022. Of that amount, $ 621 million came from free cash flow. Tesla’s operating cash flow excluding capital expenditures.

Additionally, $ 936 million comes from converting 75% of the company’s bitcoin purchases into fiat currency. These cash earnings were partially offset by debt repayments of $ 402 million.

Lots of reinvestment opportunities

With such a strong cash position, the company reiterated that it still has enough liquidity to self-finance its product and capacity expansion plans. Of course, these strategies require a lot of capital, so the electric car company has no shortage of reinvestment opportunities.

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Regarding plans to expand production capacity, Telsa said it plans to increase annual shipping volume by around 50% over a “period of several years”. To that end, Tesla is ramping up production at its Shanghai and Fremont factories, as well as its recently opened factories in Texas and Berlin.

Looking ahead, Tesla continues to develop new products including Cybertruck, Tesla Semi, Next Generation Roadster, Robotaxi Service and many more.

Combining Tesla’s improved profitability and strong cash position with a significant reinvestment opportunity, the company appears to be in a great position. It is poised to take advantage of a variety of growth opportunities and deliver significant long-term revenue and earnings growth.

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