Tesla Posts Record Earnings at Start of Turbulent Year

Tesla Inc. posted a record quarterly profit despite supply disruptions, fueled by rising deliveries and increasingly broad-based demand for electric vehicles.

The Silicon Valley car maker has enjoyed booming sales, driven by both its popular Model Y compact sport-utility vehicle and sustained demand in China. The company also has benefited from the wider embrace of plug-in cars as governments across the world push to phase out gasoline-powered vehicles, in some cases through subsidies.

“We’ve seen a real shift in customer perception of electric vehicles, and our demand is the best we’ve ever seen,” Chief Executive Elon Musk said Monday on an investor call.

Tesla on Monday said revenue in the first quarter jumped around 74% from the same period a year earlier to US$10.4 billion. The company generated a US$438 million net profit, up from $16 million a year ago. Wall Street on average expected the company to report sales of about $10.5 billion and net income of around $509 million for the January through March period, according to analysts surveyed by FactSet.

Tesla said it delivered 184,877 vehicles in the first three months of the year, more than double the number during the same period a year earlier. The company, which delivered nearly half a million vehicles in 2020, reaffirmed it expects that figure to rise more than 50% this year.

The company’s strong financial start to the year comes as it faces challenges on other fronts. Federal auto-safety officials are investigating the fatal fiery crash of a Model S sedan earlier this month in Texas. Neither of the victims was found in the driver’s seat, local officials have said. The National Highway Traffic Safety Administration’s probe of the wreck is one of more than two dozen investigations of crashes involving Tesla vehicles.

The crash left questions about whether or how the vehicle could have been operating without anyone in the driver’s seat.

A Tesla executive said the company was working with local and federal authorities to investigate what happened.

The car’s steering wheel, he said on the call, was found to be deformed, “leading to the likelihood that someone was in the driver’s seat at the time of the crash.” All the seat belts, post crash, were found to be unbuckled, he said. Tesla wasn’t able to recover data from the car’s memory device.

Tesla conducted a study along with authorities in which the company tried to replicate the likely crash scenario, the executive said. The company said that a driver assistance feature that helps with steering didn’t engage in the test, while another feature, adaptive cruise control, only activated when a driver was buckled in and traveling at above 5 miles per hour.

Mark Herman, the constable whose precinct the crash happened in, declined to comment on Tesla’s statement that someone likely was in the driver’s seat at the time of the crash, saying that the incident remained under investigation.

Tesla has also faced parts shortages that led the company to briefly shut down its Fremont, Calif., factory in February. Rivals such as General Motors Co., Ford Motor Co. and Volkswagen AG have had to idle some production capacity because of a global semiconductor shortage.

“We were able to navigate through global chip-supply shortage issues in part by pivoting extremely quickly to new microcontrollers,” the company said in a note to shareholders, adding that it also was devising new software for chips made by new suppliers.

Mr. Musk said the past quarter “had some of the most difficult supply chain challenges that we’ve ever experienced.” Those go beyond computer chips, he said. China production was held back because key engineers couldn’t travel there because of Covid-19 related quarantine restrictions, he said. Some of the effects are likely to last in the current and following quarter, he said.

Tesla said it had successfully lowered the cost of making cars, helping offset a decline in the average price of its vehicles.

The company’s bottom line also benefited from several factors not directly linked to car sales. Its financial results have been aided by the sale of regulatory credits to rival auto makers that need them to comply with emissions-related rules. Such credits brought in $518 million in the most recent quarter, up from $354 million during the year-earlier period. Tesla has previously said it doesn’t expect such sales to be a material part of its business.

The company also said it saw a positive earnings effect from the sale of bitcoin in the period. Tesla bought $1.5 billion worth of the cryptocurrency in the first quarter and sold 10% of that, Chief Financial Officer Zach Kirkhorn said. The company is now accepting bitcoin as payment for products sold in the U.S.

Mr. Kirkhorn said the company opted to invest in bitcoin when it was looking for a place to store cash it didn’t immediately need as a way to preserve liquidity while also earning a return. “It is our intent to hold what we have long-term and continue to accumulate bitcoin from transactions from our customers as they purchase vehicles,” he said on the investor call.

Tesla’s success in popularizing electric vehicles transformed the company into the world’s most valuable car maker. Its success also spurred legacy car makers and startups alike to develop competing models, some of which are showing early signs of eroding Tesla’s market share.

In the U.S., for example, Tesla vehicles accounted for roughly 70% of the all-electric vehicles sold in the first quarter, according to the research firm Cox Automotive Inc. That is down from about 82% during the same period a year earlier.

Tesla’s stock soared more than eightfold last year. It is up roughly 4.5% in 2021 after advancing 1.2% on Monday ahead of results. The stock retreated more than 2% in after-hours trading.

Global demand for electric vehicles continues to increase, though, and Tesla is adding production capacity to keep pace. The company said it remains on track to begin producing vehicles this year at its new car plants near Austin, Texas, and outside Berlin, its first in Europe. Tesla has expanded capacity at its first overseas plant in Shanghai and began delivering China-made Model Y vehicles this year after kicking off with the Model 3 sedan in 2019.

China has been a growth engine for Tesla, helping to lift the company to its first full-year profit last year. But the company has hit a rough patch in the market recently. Chinese authorities summoned Tesla in February over consumer quality complaints. The government also restricted the use of Tesla vehicles by military personnel as well as employees at key state-owned companies over data-security concerns.

Earlier this month, a single protester with a disputed claim about the safety of Tesla’s vehicles drew widespread attention across the Chinese internet, which is closely controlled by the government.

Tesla has apologized for its treatment of some customers in China and said it would do better. Mr. Musk said last month that Tesla would be shut down if it used its vehicles to spy, which he said was “a very strong incentive for us to be very confidential.”

Tesla also reaffirmed that it expects to deliver its first semitrailer trucks to customers in 2021, two years after initially planned. Mr. Musk said in January that the company didn’t have enough battery cells to go into production with the vehicle.

The hottest crypto trade has turned cold. Some investors are saying “told you so,” while others are doubling down.

It was the move to make for much of the year: Sell shares or borrow money, then plough the cash into bitcoin, ether and other cryptocurrencies. Investors bid up shares of these “crypto-treasury” companies, seeing them as a way to turbocharge wagers on the volatile crypto market.

Michael Saylor pioneered the move in 2020 when he transformed a tiny software company, then called MicroStrategy , into a bitcoin whale now known as Strategy. But with bitcoin and ether prices now tumbling, so are shares in Strategy and its copycats. Strategy was worth around $128 billion at its peak in July; it is now worth about $70 billion.

The selloff is hitting big-name investors, including Peter Thiel, the famed venture capitalist who has backed multiple crypto-treasury companies, as well as individuals who followed evangelists into these stocks.

Saylor, for his part, has remained characteristically bullish, taking to social media to declare that bitcoin is on sale. Sceptics have been anticipating the pullback, given that crypto treasuries often trade at a premium to the underlying value of the tokens they hold.

“The whole concept makes no sense to me. You are just paying $2 for a one-dollar bill,” said Brent Donnelly, president of Spectra Markets. “Eventually those premiums will compress.”

When they first appeared, crypto-treasury companies also gave institutional investors who previously couldn’t easily access crypto a way to invest. Crypto exchange-traded funds that became available over the past two years now offer the same solution.

BitMine Immersion Technologies , a big ether-treasury company backed by Thiel and run by veteran Wall Street strategist Tom Lee , is down more than 30% over the past month.

ETHZilla , which transformed itself from a biotech company to an ether treasury and counts Thiel as an investor, is down 23% in a month.

Crypto prices rallied for much of the year, driven by the crypto-friendly Trump administration. The frenzy around crypto treasuries further boosted token prices. But the bullish run abruptly ended on Oct. 10, when President Trump’s surprise tariff announcement against China triggered a selloff.

A record-long government shutdown and uncertainty surrounding Federal Reserve monetary policy also have weighed on prices.

Bitcoin prices have fallen 15% in the past month. Strategy is off 26% over that same period, while Matthew Tuttle’s related ETF—MSTU—which aims for a return that is twice that of Strategy, has fallen 50%.

“Digital asset treasury companies are basically leveraged crypto assets, so when crypto falls, they will fall more,” Tuttle said. “Bitcoin has shown that it’s not going anywhere and that you get rewarded for buying the dips.”

At least one big-name investor is adjusting his portfolio after the tumble of these shares. Jim Chanos , who closed his hedge funds in 2023 but still trades his own money and advises clients, had been shorting Strategy and buying bitcoin, arguing that it made little sense for investors to pay up for Saylor’s company when they can buy bitcoin on their own. On Friday, he told clients it was time to unwind that trade.

Crypto-treasury stocks remain overpriced, he said in an interview on Sunday, partly because their shares retain a higher value than the crypto these companies hold, but the levels are no longer exorbitant. “The thesis has largely played out,” he wrote to clients.

Many of the companies that raised cash to buy cryptocurrencies are unlikely to face short-term crises as long as their crypto holdings retain value. Some have raised so much money that they are still sitting on a lot of cash they can use to buy crypto at lower prices or even acquire rivals.

But companies facing losses will find it challenging to sell new shares to buy more cryptocurrencies, analysts say, potentially putting pressure on crypto prices while raising questions about the business models of these companies.

“A lot of them are stuck,” said Matt Cole, the chief executive officer of Strive, a bitcoin-treasury company. Strive raised money earlier this year to buy bitcoin at an average price more than 10% above its current level.

Strive’s shares have tumbled 28% in the past month. He said Strive is well-positioned to “ride out the volatility” because it recently raised money with preferred shares instead of debt.

Cole Grinde, a 29-year-old investor in Seattle, purchased about $100,000 worth of BitMine at about $45 a share when it started stockpiling ether earlier this year. He has lost about $10,000 on the investment so far.

Nonetheless, Grinde, a beverage-industry salesman, says he’s increasing his stake. He sells BitMine options to help offset losses. He attributes his conviction in the company to the growing popularity of the Ethereum blockchain—the network that issues the ether token—and Lee’s influence.

“I think his network and his pizzazz have helped the stock skyrocket since he took over,” he said of Lee, who spent 15 years at JPMorgan Chase, is a managing partner at Fundstrat Global Advisors and a frequent business-television commentator.

Tesla Posts Record Earnings at Start of Turbulent Year

Electric-vehicle pioneer faces safety investigations and mounting competition.

Selloff in bitcoin and other digital tokens hits crypto-treasury companies.