To The Moon

Tesla’s second-quarterearnings report isdue out on July 20.Covid-19 lockdownsin China, which constrained production and added costs, will make the results interesting to say the least.

Credit Suisse analystDan Levyis worried those lockdowns will pressureTesla’s(ticker: TSLA) second-quarter profit margins. It’s a valid concern. But if results at Tesla competitorBYD(1211.Hong Kong) are any indication, things might turn out better than expected.

For Tesla, Levy expects gross margins, excluding regulatory credit sales, to be about 23%, down about 7 percentage points from the first quarter. “We expect significant focus on gross [profit] margin in the 2Q print,” wrote Levy in a Thursday report. The “Shanghai shutdown [is] driving weaker production mix and weaker fixed-cost absorption.”

Fixed-cost absorption refers to the idea that Tesla had most of the costs associated with running a large plant in the second quarter, but without all the revenue associated with full production. Tesla shipped about 113,000 vehicles from its Shanghai facility in the second quarter. It shipped about 182,000 units in the first quarter of 2022.

Worldwide, Tesla shipped about255,000 vehiclesin the second quarter, down from about310,000 shippedin the first quarter of 2022.

As result of declining production, as well as start-up costs at Tesla’s new plants in Germany and Texas, Levy projects a pretty bad quarter. His call for earnings per share is $1.31 for the second quarter. The Wall Street consensus is about $1.85 a share.

The consensus estimate, however, looks a little stale at this point. Not every analyst has updated numbers to reflect the shutdown. Some EPS estimates are still as high as $2.60. Tesla earned about $3.20 a share in the first quarter.

Levy might be right, but there is hope he is too pessimistic. Chinese EV makerBYDsaid Thursday it expects to generate earnings per share of about 14 cents to 18 cents in the first half of 2022. The midpoint, 16 cents, is about a dime better than analysts are projecting.

BYD shares jumped 5.5% in overseas trading on the news. TheHang Seng Indexfell 0.2% in Thursday trading.

BYD has faced many of the same headwinds as Tesla in the second quarter. But the Chinese EV maker’s sales volumes still rose quarter over quarter. BYD volumes went to about 355,000 units in the second quarter from about 291,000 units in the first three months of the year.

Higher production is one reason for the better-than-expected BYD update. Still, the implied net profit margin for BYD is going to about 2.1% in the second quarter from about 1.4% in the first quarter of 2022. The increase shows it is possible for auto makers to make some headway despite inflation and supply-chain issues.

BYD managed to navigate the difficult second quarter successfully. Investors will have to wait to see if Tesla did the same.

Regardless of what Tesla reports, Levy says investors should look past the volatile second quarter. He rates Tesla shares Buy and has a $1,000 price target for Tesla stock.

Tesla stock is down 2% in early trading Thursday on a weak day for U.S. stocks. TheS&P 500andDow Jones Industrial Averageare off 1.5% and 1.6%, respectively.$Tesla Motors(TSLA)$ $BYD COMPANY(01211)$