Happy Sunday,
In today’s edition, Tim breaks down Tesla’s first quarter results as well as results from the big banks amid the regional bank collapses of last month.
In content news, we’ve been stepping up our YouTube production value and we hope that you’ve been appreciating that on the channel. We’re about to start an accelerator program for YouTube videos specifically. It’s being put on by Paddy Galloway, one of the best YT Consultants in the space. We are hoping to improve our craft when it comes to creating great videos - it starts May 1st and goes on for 8 weeks. Excited to show you all what’s to come for the next few months.
— Humphrey, Tim & Rickie
Market Report
Mixed Results from Tesla
Tesla reported its first-quarter earnings, revealing that its operating margin shrank to 11.4%, a two-year low, as a result of multiple price cuts on its electric vehicles. Elon Musk confirmed that the company is prioritizing higher production volumes and a larger fleet over higher margins and lower volumes.
The automaker has made several price cuts in recent months, reducing the starting price of the Model Y by 29% in just over three months. Tesla's discounts have been both dramatic and rapid, with the company marking down its Model Y sport utility vehicle by $3,000 and reducing the base Model 3 by 4.7% to less than $40,000 for the first time in years.
Despite the price cuts, Tesla remains ahead of other automakers margin-wise. In 2022, General Motors reported an operating margin of 6.6%, while Ford's was 4%. Tesla's Q1 revenue rose 24% to $23.33 billion, nearly in line with the average analyst estimate of $23.35 billion. Earnings fell to 85 cents a share, just shy of the consensus for 86 cents, while free cash flow slumped to a two-year low of $441 million.
Tesla recently increased the US prices of its Model S and X vehicles, raising each variant by $2,500 or 2% to 3%. The Model S and X now start at $87,490 and $97,490, respectively. These increases still leave the vehicles cheaper than they were at the end of Q1.
The company confirmed that it's on track to make at least 1.8 million vehicles this year, meeting previous guidance for a compound average growth of 50%.
Big Bank Earnings
In a quarter marked by the collapse of three smaller lenders and the nation's largest banks orchestrating a rescue for another on the verge of failure, Wall Street managed to achieve gains with minimal signs of stress.
Wall Street banks displayed strong gains in their first-quarter earnings, with the largest lenders benefitting from the Federal Reserve's rate hikes, which fueled revenue from lending operations. Banks such as JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup Inc. experienced substantial growth in net interest income. Additionally, the rate moves provided opportunities for Wall Street traders, with Citigroup and Bank of America Corp. enjoying windfalls from fixed-income, currencies, and commodities trading.
Despite a surge in customer withdrawals causing turmoil for some regional US banks, the big six banks saw inflows, with JPMorgan gaining around $50 billion and Citigroup receiving just under $30 billion. However, these large banks are having to pay more interest to retain their deposits, as customers are drawn to higher-yielding alternatives.
There are also indications of credit quality decline, as the four largest US lenders wrote off a combined $3.4 billion in bad consumer loans in the first quarter, marking a 73% increase compared to the previous year. As a result, all four institutions raised their loss provisions to levels unseen since the initial stages of the Covid-19 pandemic. This increase in provisions reflects the lenders' anticipation of potential loan losses and a cautious approach to credit risk management.
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