The coronavirus pandemic has dealt a blow the economy will take years to recover from. Industries such as airlines, food service and tourism have been especially hit and they have shouldered most of the job losses in the country. Some firms, however, have not only weathered the intense storm that has been 2020, but they have thrived. One firm that has done so very publicly during this financial and health crisis has been Tesla Inc. (NASDAQ: TSLA).
The EV producer reported a profit of $100 million on Wednesday, surprising analysts who expected the firm to be bleeding money after being affected on two fronts by the pandemic. For the second quarter ending June 2020, Tesla reported reduced sales as the economy declined and millions of people lost their jobs. On top of that, the firm shut down production for nearly two months at its main plant in Fremont, California.
According to Tesla’s chief executive Elon Musk, the profit was achieved despite tremendous difficulties. “We were able to achieve a fourth consecutive profitable quarter. Although the auto- industry was down about 30 percent year-over-year, we managed to grow deliveries in the first half of the year,” he said during a conference call with analysts. The EV maker said that revenue in the second quarter fell 5% to $6 billion with total automobile sales declining to about 91,000 cars.
Tesla recently built a factory near Shanghai, with production beginning late last year. China is the world’s largest market for electric vehicles and by producing them in China, Tesla is able to avoid the tariffs China imposes on imported vehicles and pass on those savings to the consumers. The firm’s profits can also be credited to the sales of $428 million in emissions credits to other automakers who require them to meet regulatory standards.
This year’s surprise profit sets Tesla up for potential inclusion in the S&P 500 index. One of the most followed measures of performance of the American stock market, there are $11 trillion worth of mutual funds and other investments measured against it. Despite its large market value, Tesla is yet to be included in the S&P 500 due to its inability to consistently generate profits. For it to be included, a firm’s fully audited profits for the four most recent quarters must be positive. If this happens, it could trigger an upward push in the firm’s share price. That would be quite a feather in the cap for Tesla!
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