Tesla’s Earnings Crushed Expectations, Setting More Records. The Stock Is Up.

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Tesla
’s
first-quarter earnings looked surprisingly great. CEO Elon Musk even offered guidance for the rest of 2022.

The company essentially beat inflation by substituting materials and relentlessly focusing on manufacturing. Shares are higher in after-hours trading Wednesday, recouping losses seen earlier in the day.

Tesla (ticker: TSLA) earned a record $3.22 per share from $18.8 billion in total sales, its highest total ever. Wall Street was looking for earnings per share of about $2.20 to $2.30 from about $18 billion in sales. In the fourth quarter of 2021, Tesla earned $2.54 a share on sales of $17.7 billion.

Operating profit came in at a record $3.6 billion, compared with expectations for about $2.6 billion.

Shares were up 5.5% in after-hours trading, at about $1,031 a share. The stock fell about 5% in regular trading Wednesday, while the

Nasdaq Composite
lost about 1.2%. The

S&P 500
was flat.

Sales of regulatory credits, which Tesla receives because it produces more than its fair share of low-emission vehicles, contributed to the surprise. Credit sales came in at $679 million in the first quarter, more than double expectations for about $312 million.

Even excluding credit sales, operating profit was a record and much better than Wall Street expected.

Analysts were projecting an earnings decline from the fourth into the first quarter because inflation was supposed to be a headwind for the company. The average price in the first quarter for a basket of metals that go into EV batteries was up more than 70% in the first quarter compared with the fourth, according to Barron’s calculations.

Tesla management cited inflation pressures in its news release. But Tesla’s cost per car dropped compared with the fourth quarter. That was a surprise. One partial explanation is that Tesla buys batteries and materials on long-term contracts. That can delay the impact when spot prices shoot higher.

Another reason costs fell was that about half the cars Tesla shipped in the first quarter included iron-phosphate, or LFP, batteries. Those are lithium-ion batteries without more expensive cobalt or nickel metals that allow for better performance. LFP batteries don’t pack as much power in the same cell, but a standard-range Model 3 with an LFP pack still gets 267 miles a charge, according to the company.

Aside from first-quarter results, Tesla offered guidance. “We remain confident of 50% growth in vehicle production in 2022 versus 2021,” Musk said on the company’s conference call. “I think we have a reasonable shot at a 60% increase over last year.”

That will soothe investors who are worried about production rates. Tesla’s Shanghai facility shut at the end of March due to local Covid restrictions. Limited production has begun again, but the situation is still fluid.

At 55% volume growth, the mid-point of Musk’s numbers, Tesla would deliver about 1.45 million vehicles in 2022. That’s close to what Wall Street expects.

Musk also said the company is working on a new vehicle dedicated to robotaxis. Tesla continues to invest heavily in its self-driving software and technology.

Options markets implied a 5% move, up or down, following the earnings release. Shares have dropped three of the past four times Tesla has reported quarterly numbers. All four times, the company beat analysts’ projections.

Given the positive numbers and guidance, the stock appears likely to rise Thursday.

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