Vinata May 1, 2020
Elon Musk calls COVID-19 lockdowns “fascist,” distracting from another Tesla earnings win

“To say that they cannot leave their house, and that they will be arrested if they do – this is fascist,” Tesla CEO Elon Musk ranted on Wednesday, attacking shelter-at-home orders aimed at curtailing the coronavirus pandemic. “Give people back their god damn freedom.”

Musk’s comments, made during a call with investors, may resonate longer than the strong quarterly numbers the company had just reported. They also seemed to mix profits and principles.

Musk argued that the continued shutdown of its Fremont, Calif. electric car factory because of the pandemic could pose a serious risk to his company. But Tesla has a lot of cash to help it get through any downturn.

“The extension of shelter-in-place, or as I would say forcibly imprisoning people against their constitutional rights . . . it will cause great harm not just to Tesla, but to many companies,” Musk said. “While Tesla will weather the storm, other companies will not.”

Musk’s outburst came during what should have been a celebratory earnings call. For much of March, it seemed entirely plausible that the coronavirus pandemic could pose an existential threat to Tesla, which had shuttered factories and was staring down a shaken economy. While the company is not yet out of the woods, Musk has at least kept the bears at bay a bit longer with today’s reported net profit of $16 million, or 9 cents per share.

Tesla rarely touts those standard metrics, but its report emphasized that this is the first time the company has earned a net profit in the first quarter, which is generally a tough time for auto sales. In adjusted terms, which exclude some one-time expenses, Tesla reported a $227 million profit, or $1.24 cents per share.

Wall Street analysts could hardly have gotten it more wrong. Ahead of the earnings report, analysts had predicted a $1.24 per share loss in standard terms, and a 32 cents per share loss in adjusted terms. This marks the third consecutive quarter of Tesla outperforming analyst predictions.

Investors reacted to the earnings beat by piling into the company’s stock, which popped 9% in after-hours trading.

Tesla’s automotive sales grew massively year over year, from $3.72 billion in the first quarter of 2019 to $5.13 billion for the start of 2020. Auto revenues declined sequentially from $6.37 billion in the fourth quarter of 2019. But January to March is traditionally a slow period for auto sales overall, and that decline doesn’t fulfill the most dire warning of skeptics, who had predicted a massive first-quarter sales drop off, in part thanks to expiring tax credits.

Despite the decline in volume, the profitability of Tesla’s vehicles legged up yet again, with automotive gross margins rising from 22.5% in the fourth quarter to 25.5% during the first quarter. That points to broad efficiency gains, such as reduced manufacturing labor.

One highlight in particular should have bulls salivating – Tesla says that the Model 3 cars it produces in its Shanghai Gigafactory are “approaching” the profitability of U.S.-made models, indicating in part that the Chinese factory is running efficiently after just a few months. During the Wednesday conference call, Musk announced that those efficiencies will allow Tesla to lower the price of some of its Chinese-made Model 3s, which will now qualify for recently-restricted Chinese electric-vehicle incentives.

Few if any of those cost reductions likely came from furloughs and pay cuts that the company implemented in the face of the coronavirus – they didn’t go into effect until early April, after the end of the first quarter.

Tesla’s auto revenues did get at least one extra boost. Revenue generated by selling environmental regulatory credits to conventional carmakers such as GM nearly tripled, from $133 million in the fourth quarter of 2019, to $354 million for the start of 2020. Tesla’s regulatory credit sales also rose in the first quarter of 2019, in both cases helping boost lowered sales revenues.

Other flexible line-items–what analyst Craig Irwin of Roth Capital Management has referred to as “levers Tesla can pull”–may lie beneath the impressive numbers. Those could include reduced warranty costs or the recognition of additional revenue from new autonomous driving features, but those factors won’t be clear until Tesla releases more detailed financials in about 10 days.

After that, Tesla will be face to face with the much more uncertain territory of the coronavirus future – constitutional or not.

More must-read tech coverage from Fortune:

—Who is new AT&T CEO John Stankey?
—Work from home tips from the executive team that brought you Zoom
—Is A.I. better at diagnosing illnesses than doctors? Don’t believe all the hype
—Facebook debuts Zoom-like video chat feature called Messenger Rooms
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: Zoom’s ups and downs since the coronavirus crisis

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