Since entering the S&P500 back on 21st December 2020 at $666, Tesla share price has just about managed to hold onto the upward momentum that has been in place since the beginning of 2020, when the shares were down at the lowly levels of $83.

Having hit a record high of $895 back in January the shares have slipped back a touch in the past few months as questions start to get asked about whether this sort of valuation can be sustained at a time when the likes of GM, Ford and Daimler are starting to ramp up their electric vehicle offerings, and have the ability to scale much quicker.

Meanwhile in China, Tesla’s love story could well start to encounter more risks. Last week the company was slapped down by Chinese authorities over how it treated one of its customers at the Chinese auto show, after complaints around the vehicle’s brakes. This is an area, if reports are correct, that Tesla may have room for improvement.

The shares have held up fairly well so far this quarter, with the latest delivery stats showing that the company delivered 184,800k vehicles in Q1, a new record, with most of them being the Model 3 and Model Y. The Model S and X saw just over 2k deliveries in Q1, with the hope that production, and then deliveries can be ramped up further.

Q1 profits came in at $0.93c a share, above estimates of $0.80c a share, while net income came in at $483m, on revenues of $10.39bn.

The company is certainly making great strides in building up capacity with the new plant in China up and running, along with new plants in Austin, Texas and Brandenburg in Germany set to come on line sometime this year, though the German plant does appear to have hit some snags, which could mean the opening is delayed.

These new plants are expected to produce the new crossover SUV Model Y, with the Austin plant also set to produce the new Cybertruck and Tesla Semi, for the eastern half of North America, with the hope that all of this extra capacity could see up to 1m cars delivered this year.   

One particular concern for Tesla in its previous set of numbers was that gross margins fell to 19.2% in Q4, the lowest in 12 months, though on the plus side we did see positive free cash flow of $2.79bn, and this has continued in the first quarter of this year, albeit on a slower scale of $293m.

The company has done well in managing to post consistent profits on a quarterly basis over the past 12 months, though this has largely been achieved in the form of the sale of regulatory credits, and energy storage sales, with regulatory credits contributing $518m this quarter, up from $401m in Q4.

The company also spent $1.2bn on Bitcoin in the last quarter, making a profit of $101m in the process.

With Tesla making profits of $331m in Q3, $271m in Q4, and $483m this quarter, it still means that on car sales alone the company is struggling to turn a profit.

You can argue as to whether or not that really matters, but at a time when competition is only expected to get fiercer, and Tesla has already cut prices in China, and will probably have to continue to do so again as it brings its cost of production down, the pressure on margins is only likely to increase.  

With a market cap way ahead of the entire automotive sector, the company has an almost cult like status amongst its devotees, along with CEO Elon Musk, which is fine but it still doesn’t change the fact whatever you think of Tesla and its cars, it still can’t generate profits from that side of the business.

It’s difficult to see how this can change no matter how much it drives down its costs of production as competition increases, which means it will still be heavily reliant on the other areas of its business, regulatory and energy storage sales, as well as bitcoin sales, begging the question as to how sustainable that is.

Maybe that’s why the shares turned lower in after-hours trading.

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