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Shanghai Production Shutdown May Put A Damper On Tesla's Earnings

Shanghai Production Shutdown May Put A Damper On Tesla's Earnings
Tesla investors will be watching on Wednesday to see if the electric vehicle manufacturer can meet its lofty 2022 delivery target as its largest factory, Shanghai, deals with a COVID-19 closure and new factories ramp up production slowly.
Tesla releases quarterly results, and analysts wonder if CEO Elon Musk would disclose his $43 billion bid for Twitter, and if he will use any of his Tesla stock to help pay the acquisition.
Analysts believe that the COVID-19-related suspension of Tesla's Shanghai production, as well as the costs of scaling up additional factories in Berlin and Texas, adversely on the company's first-quarter profitability.
Tesla's volume increase will comfortably exceed 50% from last year, Musk stated in January, implying that the company will deliver more than 1.4 million vehicles this year.
Tesla outperformed its competitors in navigating the global supply chain problem, producing record deliveries and earnings for multiple quarters. However, its Shanghai production was closed for more than three weeks after the city implemented lockdown measures in response to an increase in COVID-19 cases.
According to a press report, Tesla resumed manufacturing at its Shanghai plant on Tuesday.
"The Shanghai restart cadence (and) the Berlin/Austin ramp add an element of uncertainty to 2022 deliveries," Credit Suisse analyst Dan Levy said in a client note.
"We expect significant focus on gross margin in the 1Q print. We forecast ... a reversal from Tesla's recent run of lofty margins."
According to Refinitiv data, the Austin, Texas-based business is likely to post $17.80 billion in revenue for the January to March quarter, increasing more than 70 per cent year over year but relatively flat from the prior quarter.
The average analyst expectation for Tesla is $2.26 per share, according to Refinitiv. This is up from 93 cents per share a year ago, but it is the first quarterly drop in two years.
Tesla's first Texas-made Model Y automobiles were delivered earlier this month in a lavish celebration, but no Texas vehicles are currently featured on Tesla's order page.
"It'll probably be a while before the Texas factory can get up to full speed," Guidehouse Insights analyst Sam Abuelsamid said, citing challenges of launching volume production of 4680 cells likely to be used in the Texas vehicles.
Analysts and investors are also wondering how Musk's Twitter pursuit would effect his leadership of Tesla. Musk, the CEO of SpaceX, recently stated that he splits his time between Tesla and SpaceX.
"Running Twitter would be a possible distraction for a CEO that already has a full plate," Wells Fargo said in a report.
Even if he pulls in private-equity partners to fund his Twitter bid, he will be a significant shareholder in the social media business, which means he will most likely have to sell some Tesla stock to fund the acquisition, according to Goldstein.
Musk stated last week that he wasn't sure if he'd be able to buy Twitter and that he has a backup plan in case the company rejects his bid.

Christopher J. Mitchell

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