Tesla's ( TSLA -0.33% ) recently reported first-quarter revenue and earnings per share were better than expected; that was certainly good news for the electric-car maker's shareholders. But there was another narrative in the quarterly update that was probably even more valuable to investors: Despite facing some major production headwinds so far in 2022, Tesla still expects to grow deliveries 50% or more in 2022 compared to 2021.
This upbeat view is impressive in light of industrywide challenges including parts shortages and logistical issues, as well as a recent three-week closure of Tesla's factory in Shanghai amid COVID-19-related restrictions in the region.
Let's take a closer look at how bullish Tesla's management remains about its growth prospects in 2022.
The Tesla Model 3. Image source: Tesla.
What about Giga Shanghai?
During the end of Q1 and the beginning of Q2, Tesla had to temporarily shut down its factory in Shanghai -- or as Tesla management calls it, Giga Shanghai. Government restrictions on factories amid a resurgence in positive COVID-19 cases meant the factory was on lockdown.
Going into Tesla's first-quarter update, there were questions about how quickly the company would be able to ramp back up production at Giga Shanghai now that the factory is finally operational again. It turns out that Tesla isn't worried at all about a return to meaningful output at the important plant. "Giga Shanghai is coming back with a vengeance," said CEO Elon Musk in the company's first-quarter earnings call on Wednesday. Indeed, Musk said he thinks that Tesla could achieve a record-high weekly production rate at the factory this quarter. However, given the lockdown at the beginning of the quarter, total quarterly production is expected to be similar to or even slightly below what it was in Q1.
Production could grow 60% this year
Of course, there's more to the bull case for Tesla's potentially strong growth in vehicle deliveries in 2022. The company also recently started producing vehicles at two new factories: Production in Berlin started in late March, and production in Austin, Texas, began in late April. And apparently, production at both factories is off to a great start. In fact, Tesla management said it expects its increase in production at the two new factories to occur at a faster rate than at the company's Shanghai factory -- and Shanghai was the company's fastest production ramp-up ever.
All told, an expected quick recovery of production in Shanghai and an anticipated rapid ramp-up in production at Tesla's new factories is a setup for strong sales growth in 2022. Indeed, Musk said Tesla now has "a reasonable shot" at 60% growth in vehicle production this year.
Of course, there are some big risks to Tesla's target production levels in 2022. Namely, if factories shut down again in Shanghai, this could impact production of Tesla vehicles not only in Shanghai but also in the United States. Management said it does have some upstream suppliers in the China market that were impacted by the government lockdowns. For now, management indicated that these constraints are likely to be alleviated. But another lockdown in China could have a significant negative ripple effect.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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April 22, 2022 at 09:16PM
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Tesla Still Expects Big Growth This Year - The Motley Fool
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