Why Investors Are Selling Tesla Ahead of Today’s Earnings | The Motley Fool

What happened

While Tesla ( TSLA -4.96% ) CEO Elon Musk has been making headlines for other reasons in recent days, the focus for investors turns back to his electric car company this afternoon. Tesla is set to report first-quarter earnings after the bell today, and investors seem pessimistic about what they’ll hear. Shares of the electric vehicle (EV) leader were trading down 4.2% as of 2:23 p.m. ET today. 

So what 

There have certainly been some positive highlights for the company so far this year. But Tesla investors seem to be concerned about what the impacts to production will be from COVID-19-related lockdowns in Shanghai. Tesla opened the Shanghai plant — its second production facility — in 2018, and it has been a large contributor to the company’s explosive growth. 

Image source: Tesla.

Now what

The Shanghai plant has been supplying the large market in China as well as its European customers. The suspension of production there won’t have nearly as much impact on the first quarter as it will on second-quarter production, since it only began near the end of the first quarter on March 28. But investors are likely thinking guidance for second quarter will be hit, and that might be what is concerning them ahead of the report. 

Tesla is expected to report a huge increase in earnings compared to the year-ago period, but the $2.2 billion in expected first-quarter profit would be slightly lower than the record $2.3 billion reported in the fourth quarter of 2021.

Tesla also has been battling increases in raw material costs. It raised prices on the vehicles produced in the Shanghai plant during the first quarter. Investors will want to hear more about how inflation may be impacting profit margins, and will be focused on what the overall impacts will be from the Shanghai plant production delays. Leading up to the report, investors seem to be expecting the worst.