HOT AIR BALLOON FLIGHT

By Julia Horowitz • Tuesday, July 27

Good morning. In today's newsletter: How Tesla turned a $1 billion profit for the first time. Plus, Hasbro is already concerned about delivering toys this  December, and why Nvidia could be the next tech company to join the Dow.

 

US stock futures are lower after the S&P 500 hit an all-time high on Monday. Markets in Europe dropped in early trading, while stocks in China continued to log sharp declines as the country cracks down on private companies.

 

▸ Forwarded this newsletter? Want global markets news and analysis from CNN Business reporters every morning? You can sign up here.

MARKET FLASH

How Tesla made more than $1 billion

Tesla is making strides in its transformation from scrappy upstart to mature carmaker. And it has the numbers to prove it.

 

What's happening: The electric vehicle company netted a record $1.1 billion in profit during the second quarter. That's more than double the $438 million it made in the first quarter, and more than 10 times the net income it reported a year ago.

 

Shares, which rose more than 2% before Tesla's earnings announcement on Monday, are up another 1.5% in premarket trading.

So how did Tesla do it?

1. Car sales: Tesla produced and delivered more than 200,000 vehicles during the second quarter, an all-time high.
2. Reduced costs: The company slashed costs at its factories, boosting its operating margin to 11%, on par with competitors like GM.

Tesla also brought in $354 million from selling regulatory credits to other automakers, who use them to meet environmental standards and avoid large fines. But the company was far less dependent on that revenue than it had been in the past — a good sign as other firms start making more of their own electric vehicles, reducing the need for credit swaps.

 

Still, the months ahead could be choppy, putting pressure on Tesla's almost $634 billion market value.

 

"Tesla's high valuation leaves little room for less-than-perfect execution," said JPMorgan analyst Ryan Brinkman. "We did see some less-than-perfect takeaways."

 

CEO Elon Musk warned that the computer chip shortage weighing on the entire auto industry continues to pose problems.

 

"While we're making cars at full speed, the global chip shortage situation remains quite serious," he told investors. "For the rest of this year, our growth rates will be determined by the slowest part in our supply chain."

 

Tesla pushed back the plans for a semi-tractor truck until 2022 "due to the limited availability of battery cells and global supply chain challenges." It also indicated it's delaying the debut of its electric pickup truck as it tries to get new factories online near Austin, Texas and Berlin, Germany.

 

That expanded capacity is important as rivals begin to produce more EVs, which could take a bite out of Tesla's market share.

 

"While [Tesla] is clearly a trailblazer in the EV market and has successfully differentiated itself as an EV incumbent versus newer EV entrants, [Tesla's] operating environment is shifting from that of a vacuum to an increasingly crowded space," Bank of America analyst John Murphy said in a note to clients.

 

🗣 On the radar: Tesla fans who've dialed into quarterly earnings calls to hear the latest from Musk may be disappointed in the future. On Monday, he indicated he would most likely skip upcoming earnings calls "unless there's something really important that I need to say."

VOICES

Chipotle says boosting wages helped ease staff shortages

"We're in a really good labor spot. We've made tremendous progress on what was really a difficult situation."

 

CEO BRIAN NICCOL

 

Read more from CNN Business.

EARNINGS MONITOR

Toymakers are gearing up for a tricky holiday season

It may be the middle of summer, but the toy company behind Transformers, My Little Pony, Baby Alive and Play-Doh is already looking ahead to a difficult holiday season.

 

Hasbro said Monday that it's sourcing products earlier from multiple countries, boosting the number of ocean carriers it works with and utilizing more ports to ensure its toys make it to eager children come December.

 

"We may experience some shifts in delivery dates and timing of revenue, but we're leveraging our global footprint and scale to meet demand," Chief Financial Officer Deborah Thomas told analysts.

 

Hasbro is also raising prices for its toys to account for higher transportation and commodity costs. It expects the hikes to fully kick in by the final three months of the year.

 

The guidance is a reminder that snarled supply chains are still weighing on businesses in the second half of 2021 as the pandemic complicates global shipping, and that rising inflation is still feeding through the system.

 

Step back: That could cause headaches for retailers, even as consumer demand rebounds.

 

Investor insight: Hasbro shares rallied 12% on Monday after the company said revenue rose 54% to $1.3 billion. But they're still lagging the S&P 500 so far this year. Competitor Mattel, whose stock is performing better, reports earnings on Tuesday.

UP NEXT

3M, JetBlue, General Electric, Sirius XM, UPS and Xerox report results before US markets open. Alphabet, Apple, Mattel, Microsoft, Mondelez, Starbucks and Visa follow after the close.

Also today: US durable goods orders for June post at 8:30 a.m. ET. Consumer confidence data for July follows at 10 a.m. ET.

 

Coming up: On Thursday, July 29 at 11 a.m. ET, CNN Business presents "Foreseeable Future: A Conversation about the Workplace Revolution."

 

Join CNN Business' Kathryn Vasel in conversation with Microsoft CEO Satya Nadella, followed by a panel discussion with DocuSign CEO Dan Springer, Vimeo CEO Anjali Sud and BetterUp Co-Founder and CEO Alexi Robichaux. 

 

To reserve a spot now, RSVP here. (If your link didn't work yesterday, give it another go!)

WHAT WE'RE READING AND WATCHING

▸ Meituan, Tencent keep plunging amid crackdown (CNN Business) 
▸ Lucid Motors shares rise 11% in first day of trading (WSJ)

▸ Justice Department kills major insurance merger (CNN Business)
▸ CEOs urge Congress to swiftly pass infrastructure bill (CNN Business)
▸ Emerging markets erase annual gains as China slumps (Bloomberg)
▸ Philip Morris wants cigarette ban in the UK by 2030 (CNN Business)

FINAL WORD

Is this the next tech company to join the Dow?

Chip giant Nvidia is the ninth most valuable company in the S&P 500. With a market capitalization of almost $500 billion, the company is worth nearly as much as semiconductor rivals Intel, Advanced Micro Devices and Qualcomm combined. 

 

Nvidia's growing clout is sparking chatter that it could soon be tapped to join the venerable Dow Jones Industrial Average, my CNN Business colleague Paul R. La Monica reports.

 

Watch this space: Until recently, Nvidia would have been too expensive for the Dow, which weights the 30 companies in its index by stock price. As of a few weeks ago, shares were trading north of $750, which would have easily made it the Dow's biggest member.

 

But Nvidia recently split its stock. It now trades around $190 — much more Dow-friendly.

 

The chipmaker's annual sales still pale in comparison to Intel or IBM, which are both expected to generate more than $70 billion in revenue this year. Still, Nvidia's revenue forecast of about $25 billion for this fiscal year isn't shabby.

 

It's also higher than the sales expectations for Dow components Visa and McDonald's, and on par with the revenue estimates for software giant Salesforce, which was added to the Dow last year.