Electro Optic Systems Holdings Ltd (ASX: EOS) shares are plunging in morning trade after the company’s latest quarterly update was released. At the time of writing, the Electro Optic share price is trading at $4.80, down 5.14%. 

Let’s take a look at how the Aussie technology company has been performing.

Why has the Electro Optic share price dipped?

Electro Optic shares are on the slide today despite the company reporting “considerable progress” in consolidating and progressing key results from 2020. This included new personnel as EOS pushes to become a sovereign Australian prime contractor. Mr David Black joined the board as an independent non-executive director while Mr Michael Lock was appointed CFO in March.

The company reportedly made “strong progress” both in Australia and internationally in its defence systems segment. EOS is now engaged in several programs with the Commonwealth of Australia.

Electro Optic expects to deliver the balance of its September 2020 contract for 251 remote weapon systems (RWA) by Q3 2021. That will bring the number of EOS RWS in service with the Commonwealth of Australia to 530 units.

Meanwhile, Hanwha Defence Australia (HDA) has engaged EOS to provide T2000 turrets for three Redback vehicles undergoing customer evaluation in 2021. EOS is the turret provider for Redback and the preferred supplier for the RWS component.

The Electro Optic share price is not responding positively despite the company providing an update on its C4Edge program involvement. The program has achieved all contract milestones on time and on budget. EOS said this success has led to further expansion of the C4Edge team with another three Australian industry partners added.

EOS also reported, “significant progress” in the Middle East, Europe and the US. This includes a “severely disrupted” major delivery contract in the Middle East impacted by COVID-19. EOS also expects an order in mid-2021 from a NATO member for RWS for remotely operated combat vehicles.

What about other business segments?

There was a continued focus on research and development (R&D) activities in Electro Optic’s space systems segment. This included a “major breakthrough” in laser technology in April which significantly advances the global effort to mitigate space debris.

Electro Optic Systems also reported a strong start to 2021 in its communications systems segment. That includes current-year revenue and EBIT at record levels for its EM Solutions subsidiary. EOS’ US-based subsidiary, SpaceLink, is also on track to meet its June 2024 regulatory deadline to “bring into use” its extensive spectrum allocation for space communications.

Foolish takeaway

The Electro Optic share price is sinking this morning following the company’s latest quarterly update. Shares in the Aussie technology group are down by around 19% in 2021 with a $762.9 million market capitalisation.

More reading

• The War in Afghanistan is ending. Which ASX companies supply our military?
• Why the Electro Optic Systems (ASX:EOS) share price is charging 5% higher

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Booktopia Group Ltd (ASX: BKG) share price is catching a break on Friday with the release of its March quarter trading update.

Booktopia is the largest Australian owned online book retailer by market share. Its shares have drifted significantly lower in recent weeks after listing on the ASX on 3 December 2020 at a listing price of $2.30 and closing at a high of $3.00 on 7 December 2020. 

Booktopia March quarter highlights 

The Booktopia share price opened 3.5% higher to $2.42 on Friday. The company delivered a solid set of March quarter results across all operational and financial metrics. Against the prior corresponding period, its quarterly revenue increased 53% to $65.0 million while underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) surged 267% to $4.2 million. 

From a year-to-date perspective, its revenues have increased 50% to $177.8 million, underlying EBITDA increased 256% to $12.1 million with a total of 6.33 million products (units) shipped. 

The company believes it is on track to achieve its upgraded full year revenue forecast of $217.6 million and underlying EBITDA of $12.9 million. This would represent a respective 31% and 115% increase on FY20 figures. 

Management commentary 

Booktopia Chief Executive Officer Tony Nash commented on the strong set of results: 

The previous corresponding quarter (January to March 2020) was the first trading period impacted by widespread lockdowns and the rapid growth of e-commerce. It is promising to see the changes in consumer behavior that marked that period continue into the new year despite the absence of long-term lockdowns. Millions of Australians have now been introduced to the world of e-commerce and will continue to appreciate the convenience and value presented by online shopping. We expect demand to continue to grow for the foreseeable future as the overall market for online books grows and we continue to take more market share.

Booktopia share price snapshot

After its $2.30 listing price, Booktopia shares climbed as high as $3.00 before sliding to a record low close of $2.34 on Thursday.

But Booktopia isn’t the only stock that’s experienced the IPO boom-and-bust phenomenon. Other newly listed shares such as Credit Clear Ltd (ASX: CCR), Douugh Ltd (ASX: DOU), MyDeal.com.au Ltd (ASX: MYD) and Adore Beauty Group Ltd (ASX: ABY) have all experienced similar share price performances.

More reading

• 2 highly rated small cap ASX shares you need to know
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• Why the Booktopia (ASX:BKG) share price is climbing today
• 2 of the best small cap ASX shares to watch

Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Adore Beauty Group Limited and Booktopia Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price is trading lower on Friday morning.

At the time of writing, the banking giant’s shares are down 0.3% to $28.85.

Why is the ANZ share price trading lower?

The ANZ share price has come under a spot of pressure this morning after the bank released an update on notable items that will be included in its upcoming first half results.

According to the release, ANZ’s first half cash earnings after tax will be impacted by $817 million of notable items. This is the equivalent to ~5 basis points of CET1 capital.

This $817 million includes previously announced items totalling $260 million and $557 million of new items.

In respect to the previously announced items, these include $48 million after tax for a class action settlement in the United States and $212 million after tax relating to equity accounted losses from AmBank.

What are the new items?

There are four new items impacting ANZ’s cash earnings.

The first is a further $135 million after tax impact from equity accounted losses from AmBank. This relates to goodwill impairment recognised by AmBank at 31 March 2021.

The largest is a $251 million after tax item relating to the write-down of goodwill attributable to the ANZ Share Investing business. This is a result of this business being reclassified as held-for-sale, reflecting a continuation of the bank’s simplification strategy.

The third item is $108 million after tax of additional customer remediation charges.

And finally, ANZ will recognise restructuring charges and other smaller divestment impacts of $63 million after tax.

When does ANZ release its results?

ANZ is scheduled to release its results on Wednesday 5 May. And with the ANZ share price up 25% since the start of the year, expectations certainly are high.

As I mentioned here, Goldman Sachs is expecting the banking giant to report first half cash earnings (pre-one offs) of $3,073 million. This will be a 117% increase on the prior corresponding period, which  was impacted greatly by COVID-19.

More reading

• Why ASX bank shares may be facing a big sell-off in the next few weeks
• What to expect from the ANZ (ASX:ANZ) half year result
• 2 highly rated ASX dividend shares
• 2 quality ASX dividend shares for May
• ASX bank shares best placed to ride the $1bn+ provisioning profit boost this reporting season

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Japara Healthcare Ltd (ASX: JHC) share price is rocketing in early-morning trade following the announcement of a takeover offer.

At the time of writing, the aged care provider’s shares are swapping hands for 98.5 cents, up 23.1%.

Details of the offer

Investors are driving Japara shares higher after digesting the company’s latest release.

In its announcement, Japara advised it has received a takeover proposal from Little Company of Mary Health Care Ltd (Calvary).

Founded in 1885, Little Company of Mary Health Care (also known as Calvary Health Care) provides community and aged care services. The group operates 14 public and private hospitals, 17 retirement and aged care facilities, and a number of community care centres throughout Australia.

The notice is an unsolicited, indicative, conditional, and non-binding proposal. Calvary plans to acquire 100% of the shareholding in Japara by way of a Scheme of Arrangement.

The indicative cash price offered to Japara shareholders is listed as $1.04 per share.

The company noted that the offer price takes into account that no dividends, distributions, or reductions in capital are paid. In addition, no material changes may occur from the date of the takeover notice. This is to ensure that the business does not significantly change in value from what Calvary has offered.

For the proposal to move forward, Japara would need to meet a number of conditions. This includes completion of due diligence, negotiation and executing the scheme arrangement, and unanimous recommendation by the board.

Japara management stated that it has not formed and view and will look into the offer along with business continuity. Trading conditions are expected to improve, and the group is waiting to hear the Australian federal government’s response to the Royal Commission next month.

The Royal Commission looked into aged care quality and safety in October 2018. In March this year, the final report was released, listing 148 recommendations.

Lastly, Japara advised that it will update shareholders and the ASX in due course of the board’s outcome.

About the Japara share price

The Japara share price has gained 60% in the past 12 months, and is up close to 30% year-to-date.

On valuation grounds, Japara commands a market capitalisation of around $213 million, with 267.2 million shares on issue.

More reading

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• Douugh (ASX:DOU) share price rises after first full quarter in the US
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• Sezzle (ASX:SZL) share price shoots higher on Q1 update and US listing plans
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Mainstream Group Holdings Ltd (ASX: MAI) share price has rocketed more than 7% as it returned to the ASX boards this morning.

Why the Mainstream share price is surging

Mainstream yesterday provided an update on the ongoing takeover battle to acquire all the company’s shares. The Aussie financial administrator received an updated offer to acquire its shares. It comes after previous offers from both Vistra and SS&C Solutions Pty Ltd (SS&C).

The Mainstream share price has this morning surged to a new record high of $2.41 per share following an updated offer from SS&C. Mainstream received an unsolicited, non-binding offer from global fund administrator Apex Group Limited (Apex).

The updated Apex offer was for $2.35 per share, which has triggered an increase in the SS&C offer to $2.35 per share. The Revised Scheme of arrangement means that Mainstream has now terminated any discussions with Apex.

Mainstream’s Board has concluded that the Revised Scheme is in the best interest of Mainstream shareholders. As a result, the Board has unanimously recommended that Mainstream shareholder vote in favour of the scheme in the absence of a superior proposal.

The updated offer has seen the Mainstream share price rocket higher in early trade. Shares in the Aussie financial administrator are up more than 7% in early trade to a new record high.

Following this morning’s move, the company’s shares are now up 141% since the start of January. That’s almost all attributable to the higher and higher takeover offers received from various parties in 2021.

Foolish takeaway

The Mainstream share price has surged higher this morning after receiving a higher takeover price from SS&C. Mainstream’s Board has given its stamp of approval and unanimously recommended shareholders accept the offer.

That means Mainstream is trading at a price to earnings (P/E) ratio of 213.6 with a $328.7 million market capitalisation.

More reading

• Why the Mainstream (ASX:MAI) share price is up 62% this week

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of MainstreamBPO Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Douugh Ltd (ASX: DOU) shares are on the rise after the artificial intelligence (AI) driven financial app developer completed its first full quarter since launching in the United States market. At the time of writing, the Douugh share price is trading 3.23% higher at 16 cents.

Let’s take a look at how the company has been performing.

Douugh quarterly highlights 

The Douugh share price is in the green today after the company reported momentum is building for its platform since the US launch in mid-November 2020. The company’s app has experienced a 259% increase in customers from 3,033 in December to 10,877 by the end of March. Douugh’s customers had deposited more than $3 million into their Douugh bank accounts with more than $1.1 million spent through their Douugh cards. 

The company was anticipating more customer growth but this was slowed due to COVID-19-enforced delays on the delivery of new debit cards. According to Douugh, it plans to make up for lost ground in the fourth quarter. 

Despite supply-side challenges, the company is pleased with how customers are interacting with the platform and the value provided by its money management tools. Douugh observes that customers are using their Douugh cards to pay their bills, such as those from Uber and Netflix, and are starting to deposit their salaries directly into their Douugh bank accounts. The company is eyeing new initiatives to further encourage this behaviour. 

Douugh also reported delivering on its development milestones for the third quarter. This included the successful rollout of its proprietary self-driving money management feature, Autopilot. This feature utilises machine learning models to manage a customer’s money, improving over time as it gets to know the user through their financial data. 

The second development was the rollout of the company’s instant virtual card push provisioning in partnership with Mastercard. This allows a customer to seamlessly add their Douugh Mastercard debit card to a digital wallet from within the Douugh app, eliminating the need to input card information manually. 

Douugh share price snapshot 

Despite the company’s achievements over the quarter, including an instant bank account funding feature in partnership with Stripe, the acquisition of social investing app Goodments and a licence to offer wealth management services in the US, there hasn’t been a whole lot going on for the Douugh share price.

Prior to today’s gains, Douugh shares have drifted lower to the 15 cent level, close to a 7-month low. But taking into consideration its listing price of just 3 cents back in October, it might take an extraordinary announcement to drive further upside in the near term. 

More reading

• The Credit Clear (ASX:CCR) share price lower on third quarter update
• Why the Douugh (ASX:DOU) share price will be in the spotlight
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• Zip (ASX:Z1P) eyes potential stock and crypto trading services
• Douugh (ASX:DOU) share price races 6% on performance update

Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Uber Technologies. The Motley Fool Australia has recommended Mastercard and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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ASX mining shares have been running hot and bargain hunters will probably need to start looking among small caps shares to find value.

The bull run in the sector is triggered by the surge in commodity prices. Iron ore, copper and other metals have either broken new records or are close to setting fresh highs.

This is why the Fortescue Metals Group Limited (ASX: FMG) share price, Rio Tinto Limited (ASX: RIO) share price and BHP Group Ltd (ASX: BHP) share price have outperformed the S&P/ASX 200 Index (Index:^AXJO) in the past year.

Smaller ASX miners could provide better value

But most experts are loath to recommend you chase these big miners higher. Talk about FOMO!

On the other hand, those willing to look at the smaller end of the market could still find a nugget or two.

One possible small ASX miner is the BCI Minerals Ltd (ASX: BCI) share price. While the shares have doubled over the past 12-months, Bell Potter reckons it could go much higher.

Salt and fertilizer provides boost

The broker bolstered it 12-month price target on the BCI share price to $0.57 from $0.50 after management provided an update on its projects.

The miner released its Mardie Salt and SOP project Optimised Feasibility Study (OFS) highlighting a 20% increase in plant throughput capacity.

The upgrade will lift steady-state salt production to 5.35 million tonnes per year (Mtpa) from 4.5Mtpa. SOP production is expected to increase to 140,000 tonnes a year (ktpa) from 120ktpa.

“BCI combines an iron ore royalty-like business with a large scale salt and fertiliser project,” said Bell Potter.

“BCI’s current EV is around 4x its 2022 iron ore EBITDA alone. The optimised Mardie Salt and SOP Project has the potential to add significant value.”

Beating on two fronts

Meanwhile, Macquarie Group Ltd (ASX: MQG) is urging investors to buy the Champion Iron Ltd (ASX: CIA) share price after it posted a better-than-expected quarterly production report.

“Production and shipments of ~2.0mt were above our forecasts in 4QFY21, and cash costs also came in 7% lower than our expectations,” said Macquarie.

“Despite the COVID-19 interruptions in 1QFY21, CIA has produced and shipped at a rate higher than the current nameplate capacity of 7.5mtpa.”

The lower costs are noteworthy as many of its peers are struggling with cost inflation.

Macquarie’s 12-month price target on the Champion Iron share price is $8 a share.

More reading

• These ASX 200 shares are tracking the Aussie economy higher in 2021
• Top broker slaps sell rating on Fortescue (ASX:FMG) share price
• 5 things to watch on the ASX 200 on Friday
• ASX 200 rises, Woolworths falls, Fortescue was flat
• Top brokers name 3 ASX shares to sell today

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Sezzle Inc (ASX: SZL) share price is on course to end the week with a strong gain.

In morning trade, the buy now pay later (BNPL) provider’s shares are up over 8% to $9.65.

Why is the Sezzle share price charging higher?

Investors have been fighting to get hold of the company’s shares this morning after it released its first quarter update and announced plans for a US listing.

In respect to the former, Sezzle reported underlying merchant sales (UMS) growth of 214.1% to US$375.1 million for the three months ended 31 March.

Sezzle also revealed income of US$29.2 million for the quarter, up 216% on the prior corresponding period. This was driven by UMS growth and a small increase in margins.

What were the drivers of this result?

Sezzle’s strong growth was driven by a 126.6% increase in active customers to 2.6 million and a 27th consecutive month of improvement in its repeat usage metric.

Active consumer repeat usage grew to 90.7% during the quarter. Furthermore, the top 10% of Sezzle’s consumers, on average, now transact 49 times per year.

Also supporting its growth was the addition of over 7,300 active merchants during the quarter. This was the largest quarterly increase in the company’s history, bringing its total to over 34,000 active merchants.

Sezzle’s Executive Chairman and CEO, Charlie Youakim, said: “The strong momentum we ended 2020 with has continued in to 2021. Our 1Q results set new company highs in UMS, Active Consumers, Active Merchants, and Repeat Usage. Our monthly UMS in March 2021 was 30% greater than December 2020. We are also excited about our efforts to attract larger merchant enterprises as evidenced by our recent additions of Market America Global and Lamps Plus.”

US listing

In addition to its results, Sezzle has announced its intention to follow the lead of Afterpay Ltd (ASX: APT) by listing in the United States.

No real details were given, but the company stated that “it intends to file a registration statement with the Securities and Exchange Commission (the “SEC”) for a proposed initial public offering of common stock in the United States. The timing, number of shares of common stock to be offered, use of proceeds, and the price for the proposed initial public offering have not yet been determined. The offering is subject to market and other conditions, including the effectiveness of the registration statement to be filed under the Securities Act of 1933.”

More reading

• ASX 200 rises, Woolworths falls, Fortescue was flat
• The Sezzle (ASX:SZL) share price is rising on new partnership
• ASX 200 falls, BHP rises, Afterpay sinks
• Your handy guide to 5 top ASX BNPL shares
• Why the IOUpay (ASX:IOU) share price is up 15% this week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Mesoblast Limited (ASX: MSB) share price is surging this morning after the Aussie company’s latest quarterly results. The cellular medicine manufacturer provided an update for the third quarter ended 31 March 2021 (Q3 2021). 

At the time of writing, the Mesoblast share price is trading at $2.09, up 14.21%. 

Why is the Mesoblast share price rocketing?

The Aussie medicine company this morning announced results from its COVID-19 acute respiratory distress syndrome (ARDS) trial.

Mesoblast CEO Silviu Itescu said, “We are very excited about the top-line results announced today from the trial of remestemcel-L in patients on mechanical ventilation due to COVID-19”.

Results showed that patients receiving remestemcel-L had reduced mortality through 60 days in the pre-specified population under 65 years old. In fact, those using Mesoblast’s drug saw 46% lower mortality through day 50.

The trial also showed mortality reduction from the drug was “accompanied by increased days alive off mechanical ventilation and reduced days in hospital”.

Mr Itescu said the results have “the potential to make a substantial impact in outcomes for this critical patient population”. Investors are driving the Mesoblast share price higher in early trade on the back of this morning’s trial updates.

Mesoblast has now entered into a license and collaboration agreement with Novartis for the development, manufacture and commercialisation of remestemcel-L with an initial focus on treating severe COVID-19.

The company also completed a US$110 million private placement during the quarter. That helped boost the company’s cash balance to US$158.3 million at quarter-end with net cash usage of US$25.8 million. 

The Aussie healthcare group continues to engage with the United States Food and Drug Administration (FDA). Mesoblast is seeking to gain approval to use remestemcel-L in treating steroid-refractory Acute Graft Versus Host Disease.

In further news driving the Mesoblast share price, results from the company’s chronic lower back pain (CLBP) trial were also promising. The results indicated that treatment “may be greatest when inflammation is high and before irreversible fibrosis has occurred in the intervertebral disc”.

Foolish takeaway

The March quarter was another action-packed one for the biotech and has resulted in the Mesoblast share price surging higher this morning. This will come as welcome news for shareholders, with the company’s shares still trading around 20% lower since mid-February. 

More reading

• Why the Mesoblast (ASX:MSB) share price is rising today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

High-flying electric vehicle leader Tesla (NASDAQ: TSLA) knocked one out of the park during the first quarter of 2021. Total revenue increased 74% from a year ago, and net income hit a new record of $438 million. However, the usual boost to the headline profitability metric (the sale of regulatory credits) was joined by yet another controversial line item: The sale of Bitcoin (CRYPTO: BTC). Nevertheless, the company’s free cash flow operating metric shows this automaker is rapidly approaching a profitable scale even without the aid of any footnotes.  

EV credits and cryptos are only part of the story

First, let’s address the $438 million in net income. Tesla detractors will often point to the company’s sale of regulatory credits as being the primary driver of bottom-line profitability. Indeed, at $518 million in the first quarter, the sale of these credits (which Tesla receives from some governments for renewable energy, and which it can sell to other companies that need the credits to offset their carbon footprint) did the heavy pulling once again on the bottom line. As other automakers ramp up their own EV efforts in the coming years, this source of revenue isn’t likely to be as lucrative as it is now.  

As for Bitcoin, Tesla made waves back in February when it said it used $1.5 billion in cash from its balance sheet to buy Bitcoin. However, before the end of the first quarter, it promptly sold some of it for a net gain of $101 million. Potential legal ramifications aside (owing to CEO Elon Musk’s frequent tweeting about cryptos and a checkered past with the Securities and Exchange Commission), Bitcoin won’t be a sustainable source of income either. It instead used its purchase to jump-start acceptance of the cryptocurrency as a form of payment for cars. 

Personally, I think the sale of regulatory credits and Bitcoin are opportunistic plays on the part of Tesla. I hear the argument that neither source of income is going to last forever, but bear in mind Tesla is still a relatively small manufacturer that is trying to rapidly scale across the globe. It’s getting creative with how it tries to fund the cost of said expansion, and it’s paying off. Free cash flow (which includes income from regulatory credits, excludes Bitcoin proceeds, but also subtracts capital expenditures like the purchase of property and equipment that isn’t fully recognized in net income) was positive $293 million during the first quarter. For the sake of comparison, this basic profitability metric was negative $895 million one year ago. 

What does that imply? It implies Tesla is rapidly reaching a very profitable scale all on its own. When backing out the extra $164 million in regulatory credits it sold ($518 million this year versus $354 million in the first quarter of 2020), Tesla’s operations generated $995 million more free cash flow year over year. More importantly, it’s closing in on break-even, even without the help of regulatory credit sales. 

Metric	Q1 2020	Q1 2021
Regulatory credit sales (included in net cash provided by operating activities)	$354 million	$518 million
Net cash provided by (used in) operating activities	($440 million)	$1.64 billion
Capital expenditures	($455 million)	($1.35 billion)
Free cash flow	($895 million)	$293 million

Data source: Tesla.  

An argument that no longer holds any water

Tesla delivered nearly 185,000 EVs during the first three months of the year, all of which were built at just two factories: One in Fremont, California, and the other in Shanghai, China. The big jump in capital expenditures this last quarter is attributable to new factories under construction in Berlin and Texas, and the ongoing expansion of the factory in Shanghai. These are big projects. Once complete and auto production begins, Tesla’s free cash flow is on track for even more dramatic increases as those capital expenditures ease. No doubt new factory projects will break ground to support future EVs like Cybertruck and Semi, but capital expenditures will nonetheless decrease as a percentage of revenue over time.  

Put another way, the argument that Tesla’s profitability is only attributable to unsustainable sources of income doesn’t hold water. Sure, it’s juicing the bottom line with regulatory credits and Bitcoin, but that’s simply creative and opportunistic activity. Businesses are supposed to make hay when the sun is shining. Perhaps Tesla’s methods are unconventional, but that doesn’t mean its manufacturing business is a slouch. Rather, its young manufacturing operation is simply getting some help while it scales to the point where it can sustain itself. 

Whether all of this warrants Tesla stock’s premium price tag is a different story altogether. But it is time to stop the commentary that Tesla’s EV business isn’t profitable without regulatory help — because it is indeed well on its way.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Nicholas Rossolillo owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Bitcoin and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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