Tesla shares fall despite electric carmaker’s first annual profit

Tesla shares fell in after-hours trading after the electric carmaker’s earnings fell short of expectations, despite recording its first annual profit, after a bumper payout to its chief executive, Elon Musk.

Operating income rose to $575m (£420m) in the fourth quarter, but it was held back by a $267m payout for Musk. Under a scheme waved through by investors in 2018, Musk could eventually be eligible for awards worth up to $55.8bn as the share price rises.

Tesla is expanding rapidly as it tries to match its manufacturing capabilities to a stock market valuation that surged eightfold during 2020 to make it the most valuable automotive company in the world. That rise in value has made Musk the world’s richest person, with a net worth of $206bn, according to the Bloomberg Billionaires Index.

During 2020, Tesla made an annual profit for the first time, with net income of $721m. However, it made more than $1.5bn from selling regulatory credits to other carmakers during the year, a profit source that will disappear as rivals catch up with electric car production.

The average selling price of new Teslas fell by 11% during the fourth quarter of 2020 as it shifted towards cheaper Model 3 and Y models.

The disparity between its earnings and its valuation – at $819bn when markets closed on Wednesday – means investors are keenly awaiting signs of the company’s future growth. Tesla said it expected to grow output by more than 50% during 2021, but gave no further detail.

Tesla last year narrowly missed its target of delivering 500,000 vehicles, but it is racing to finish new factories in Texas and Berlin. It is still on track to build its first vehicles in both plants during 2021, as well as expanding its factory in Shanghai further, Tesla said.

One big advantage Tesla gained during its enormous share price increase was easy access to capital, removing a significant concern in earlier years. Tesla had $19.4bn of cash or cash equivalents at the end of December, a pile that will allow it to continue to make big investments in technologies that it views as key to future earnings such as still-under-development autonomous driving capabilities.