Tesla’s Earnings Came in Strong. The Stock Should Rise.

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Tesla CEO Elon Musk toured the site of a future plant near Berlin in 2020.


Odd Andersen/AFP via Getty Images

The second-quarter numbers from electric- vehicle pioneer

Tesla

look good. Record operating and bottom-line profits should be enough to send share higher in coming days.

Tesla’s (ticker: TSLA) second-quarter earnings came in at $1.45 per share from $12 billion in sales. Wall Street was looking for $0.94 in per-share earnings from $11.5 billion in sales.

What is more, the reported operating profit came in at $1.3 billion. That is a new quarterly record, almost $500 million more than Wall Street expected, and something bulls will point to as a fresh catalyst for the stock.

Shares were up about 0.9% in after-hours trading.

It has been a struggle for Tesla stock since the company reported its first-quarter numbers on April 27. Tesla shares have dropped roughly 6% since then. The

Nasdaq Composite,

for comparison, has gained about 5% over the same span.

Year to date, Tesla stock has dropped about 7%, trailing behind the comparable 17% and 15% respective gains of the

S&P 500

and

Dow Jones Industrial Average.

The operating-profit figure is a big positive for Tesla bulls, especially because the number looks to be driven by the underlying profitability of Tesla’s car business and not by regulatory credits.

Regulatory credit sales amounted to $354 million, down from $518 million reported in the first quarter of 2021. Tesla generates sales by selling credits earned by producing more than its fair share of zero-emission cars. Tesla bulls and bears have discussed at length how long credit sales will last and whether or not to back them out of reported results to get a better sense of long-term profitability for the company.

Regardless of the treatment of credits in the second quarter, reported net income under generally accepted accounting principles, at $1.1 billion, was far higher than the credit sales in the second quarter. That is a feather in the cap for Tesla bulls.

Automotive gross profit margins excluding credits were 25.8% in the second quarter, while the figure for the previous four quarters, a period ending in March, was about 21.5%. Profitability looks strong.

Cash flow was solid, too. Free cash flow came in at $619 million, up from $293 million in the first quarter. It was the fifth consecutive quarter of positive free cash flow for the company.

Tesla recorded a Bitcoin impairment of $23 million in the second quarter. In the first quarter, Bitcoin trading generated a $101 million gain. The Bitcoin holdings were $1.33 billion at the end of the first quarter. Investors will have to wait for the quarterly regulatory filings, but the carrying amount should be nearly unchanged.

Management scheduled a conference call for 5:30 p.m. Eastern time to discuss the results. Analysts will want to hear about demand, new production capacity and the pace of innovation with Tesla’s driver-assistance software.

Write to Al Root at allen.root@dowjones.com