There are (or will be) 3 key objections to Tesla’s record-breaking Q1 earnings.

I’ll debunk them in this thread.

First, regulatory credit sales were higher than normal at $518m. Argument is going forward that number could shrink and impact profit.

However, during earnings call Zach Kirkhorn shared that the S/X changeover incurred a $200m one-time expense in COGS (or gross profit).

So, once S/X is fully changed over to the refreshed version and Tesla doesn't need to book those additional one-time expenses, then that will outweigh the extra ~$100m or so in regulatory credits this quarter.

Second, operating expenses jumped from $1.49B to $1.62B this quarter. Argument could be made that expenses will increase rapidly in future quarters hurting profit.

But this quarter had extremely high one-time expenses related to Elon Musk's CEO compensation plan, $299M in Q1.

This SBC (stock-based compensation) expense goes directly into GAAP operating expenses, but will be much lower in future quarters.

Here's a chart from The Accountant at TMC that shows this expense trends lower in future quarters.

Third, some will say Tesla padded profits by selling Bitcoin for a ~$100m profit. And that they can't do that sustainably.

However, the S/X changeover also had an impact on R&D expenses so it's likely if we remove that (and other one-time expenses) then that could offset BTC $.

Overall, I'm very happy with Tesla's Q1 earnings.

They largely came in within expectations, and I can't wait to see Tesla keep executing for future quarters.

Below are my estimates vs actual Q1 earnings.

Also, I do a deep dive into these 3 objections in this video.