Heres what you need to know:Growing sales in China and Europe helped cushion the pandemics negative impact on Teslas sales in the United States.Credit...An Rong Xu for The New York Times

Tesla on Wednesday reported a profit of $104 million for the three months ending in June.

The profit surprised analysts who were expecting the electric carmaker to lose money because it was forced to halt production at its main plant in Fremont, Calif., for nearly two months, from late March until the middle of May. Sales also slowed as much of the economy shut down and as millions of people lost their jobs and cut back on spending.

The profit was achieved despite tremendous difficulties in the quarter, the companys chief executive, Elon Musk, said in a conference call with analysts. We were able to achieve a fourth consecutive profitable quarter. Although the auto industry was down about 30 percent year-over-year, we managed to grow deliveries in the first half of the year.

In a statement, Tesla said revenue in the second quarter fell 5 percent, to $6 billion. Total sales of automobiles declined 5 percent, to about 91,000 cars, an update to preliminary figures it released earlier this month. Growing sales in China and Europe helped cushion the pandemics negative impact on sales in the United States.

The companys profit was also made possible by the sales of $428 million in emissions credits to other automakers who need them to meet regulatory standards. Thats nearly four times as many credits as it sold in the same quarter a year earlier.

Tesla said it ended the quarter with $8.6 billion in cash, up $535 million from the end of March.

The company added that it now has the capacity to produce more than 500,000 cars a year. While achieving this goal has become more difficult, delivering half a million vehicles in 2020 remains our target, Tesla said.

Tesla appears to be weathering the pandemic better than some other automakers. In China, the worlds largest market for electric vehicles, the company has benefited from a new factory near Shanghai that began production late last year. The plant enables Tesla to avoid the tariffs China imposes on imported vehicles and has made its cars more affordable to Chinese consumers.

The company has also added to its lineup a fourth car, the Model Y sport-utility vehicle, which is made in Fremont. Mr. Musk has said that he expects the car to become its biggest seller.

Elon Musk, the chief executive of Tesla, could soon qualify for his second giant payday of the year.

Mr. Musks compensation is driven largely by the performance of Teslas stock. And as the carmakers share price has soared in recent weeks, he stands to receive a stock award worth roughly $2 billion. The awards are part of an unusual compensation package, set up in 2018. The first payout under that plan occurred in May and now is also worth close to $2 billion.

Teslas stock has risen just over 275 percent this year, as investors have become increasingly convinced that the company will have a dominant foothold in the global market for electric vehicles. The rise in the stock has bolstered Teslas stock market value to around $290 billion, or $100 billion more than Toyotas market value.

Mr. Musks 2018 compensation package was designed to release shares in 12 installments as certain milestones are met. The first goal was for Teslas market value to be at least $100 billion on average over two different time periods that was achieved in January. Tesla also had to hit operational milestones. Over 12 months, the company has to have brought in a certain amount of revenue or a measure of profits called earnings before interest, taxes, depreciation and amortization. In May, Tesla said it had used the lowest revenue hurdle, $20 billion, to release the first tranche of shares.

Teslas market value recently exceeded $150 billion on average over the past six months and over the last 30 trading days, the threshold for the release of the second batch of shares. Tesla has already hit the lowest profit goal without considering the companys second quarter results released on Wednesday, in theory giving him the operational achievement he needs to get the shares, though the board still has to release the award. If Teslas share price stays close to current levels, Mr. Musk might even qualify for the third tranche of his stock awards this year.

Critics of the 2018 compensation package questioned why it was necessary. Before the award, Mr. Musk already owned a large chunk of Tesla shares that today are worth around $60 billion. Thats more than twice the $25 billion worth of shares available to Mr. Musk through the 2018 package. Amazons Jeff Bezos, another visionary chief executive, has not needed multibillion compensation packages to motivate him as he has led his company to become a dominant force in the American economy.

A surprise profit in the second quarter has set Tesla up for another major milestone: potential inclusion in the S&P 500 index. The index is one the most widely followed measures of the performance American stock market, with more than $11 trillion worth of mutual funds and other investments measured against it.

The company said on Wednesday it earned $104 million in the three months through June, in its fourth consecutive quarter of profitability.

Its unusual for companies with market values as large as Tesla roughly $290 billion not to be included in the S&P 500. But the companys inability to consistently generate profits has made it ineligible so far. (Criteria for inclusion require the sum of the companys fully audited profits in the four most recent quarters to be positive.)

The lack of profits hasnt bothered investors. Teslas share price has logged an astounding gain of more than 275 percent this year. But if Tesla were to be included in the index, it could trigger another upward push by stimulating a surge in demand for the shares by institutional investors.

Index-based funds low cost investment vehicles designed to mirror the performance of indexes like the S&P 500, rather than trying to beat the market must buy any stock included in the index, creating a rush for the shares of companies that are newly added.

When a company goes in that means theres a lot of buying there, said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the company that publishes the S&P 500.

Changes to the index can, and do, occur regularly. For instance, when a company is removed from the S&P 500 after a merger or bankruptcy, requiring a new addition. The additions can occur at any time and are kept especially close to the vest by S&P, because of the money making opportunity someone could have if they learned about an inclusion before everybody else.

Nobody is supposed to know. The company isnt supposed to know themselves, Mr. Silverblatt said. Nobody even calls them.

Tesla has started work on its fourth car factory at a site near Austin, Texas, the companys chief executive, Elon Musk told analysts on Wednesday.

The factory will produce a new electric pickup truck and a new semi truck, along with the Model 3 and Model Y, which it already makes at a factory in the San Francisco Bay Area. The new factory represents a substantial investment for Tesla, which is already expanding a plant in Shanghai and building another one near Berlin.

We will be creating a massive Cybertruck and semi factory in Texas, Mr. Musk said, adding that the plant would be open to the public and have a boardwalk, biking trails and bird sanctuary.

Officials in Travis County, which includes Austin, this month approved a tax break to recruit Tesla, which was also being courted by Oklahoma and other states.

American Airlines and Southwest Airlines on Wednesday became the first major airlines in the United States to broaden their mask requirements to include passengers with a medical condition or disability that would otherwise prevent them from wearing one.

If a customer is unable to wear a face covering or mask for any reason, Southwest regrets that we will be unable to transport the individual, the airline said in a statement, noting that the virus can be spread by individuals who are unaware that they have been infected.

American followed suit, saying: All customers must wear a face covering from the time they enter their departure airport and not remove it until they exit their arrival airport.

The airlines said that children under the age of 2 will still be allowed to fly without a mask, a policy in line with other major carriers. Delta Air Lines still allows exceptions for individuals with a disability or medical condition that prevents them from wearing a mask, and United Airlines says individuals seeking exemptions should reach out to its staff.

The Centers for Disease Control and Prevention recommends against masks for children under 2 years old and people with a medical condition or disability. A recent study indicated that children under 10 are less likely to transmit the virus than adults and older children, though the risk is not zero.

Southwests policy goes into effect on Monday, while Americans will start on July 29. Earlier in the day, United said it would extend its requirement for masks on planes to any area it operated in an airport. Southwest and Delta already had such policies in place.

Southwest and American are also expected to release financial results from the industrys devastating second quarter on Thursday morning. United said on Tuesday that its operating revenue declined 88 percent during the quarter from a year earlier, leading to a $1.6 billion loss. Delta said last week that its quarterly revenue had dropped 87 percent, resulting in a $5.7 billion loss.

Microsoft on Wednesday said its revenue rose 13 percent in the last quarter despite the slump in the economy. The companys growth was led by big gains in its cloud software offerings as more people work from home.

The company is not immune to shocks from the pandemic. Technology spending has fallen in industries like travel and retail. LinkedIn, the hiring and professional networking site owned by Microsoft, said on Tuesday that it was cutting 962 jobs, or 6 percent of its work force, partly because hiring has fallen sharply. In June, Microsoft announced it was shutting down its 83 retail stores, taking a $450 million charge against earnings, or 5 cents a share.

But the weaknesses were more than offset by higher demand for its cloud businesses including its cloud processing and storage services, known as Azure, and its Office 365 productivity programs.

For the three months ended in June, its fiscal fourth quarter, Microsoft generated revenue of $38 billion. Its operating profit increased 8 percent to $13.4 billion, or $1.46 a share. Both the companys sales and earnings per share surpassed Wall Street estimates.

As Congress struggles to advance negotiations over a new round of federal spending to help people and businesses endure the pandemic-induced recession, new research suggests a previous round of aid helped save millions of jobs but at high cost.

The Paycheck Protection Program, which lawmakers created in March, saved 1.4 million to 3.2 million jobs in small businesses through the beginning of June, according to research released on Wednesday by economists from the Massachusetts Institute of Technology, the Federal Reserve and ADP Research Institute. That works out to a cost of $162,000 to $381,000 per job.

Some companies that accepted assistance through the program have emerged in better financial condition and no longer need federal help. But many companies have not seen the uptick in consumer demand that Republicans were counting on reopening plans to deliver and thus could be vulnerable to closure and layoffs without more aid.

Its plausible that, when the money runs out, some of those firms would downsize again, said David Autor, an M.I.T. economist and a lead author of the study.

This was actually a very aggressive policy, Mr. Autor said in an interview. Its useful to know that when Congress sets out and spends a half a trillion dollars, it can get something done.

The new findings appear to run counter to another recent paper from a team of prominent economists at Harvard and Brown, which concluded that the P.P.P. had little material impact on employment at small businesses.

That paper used similar methods to those employed by Mr. Autor and his co-authors. But it used a different, much smaller set of data, from a financial management application used primarily by low-wage workers. Mr. Autor said it was possible that the federal loan program did not do much to help those people, most of whom cannot work from home, even as it succeeded in bringing back jobs elsewhere in the economy.

Trump administration officials had claimed in a news release earlier this month that the program supported over 51 million jobs. Mr. Autor said that the idea that a much larger number of jobs saved was not right, because much of the money appears to have gone to help businesses that would not likely have folded shop without aid.

For several weeks, real-time data has suggested that the U.S. economic recovery could be stalling. Now there is evidence it could be going in reverse.

Data from the Census Bureau on Wednesday showed that the number of employed people fell by more than four million last week, the fourth-straight weekly decline. Taken literally, the results indicate that the economy has given up all the job gains since mid-May, before the recent surge in coronavirus cases.

Just under 52 percent of American adults were employed last week, according the survey, down from 54 percent in June.

The data comes from the bureaus weekly Household Pulse Survey, an experimental effort to track the pandemics economic impact. The survey has a brief track record, but a good one: It correctly signaled the big increase in employment in the jobs report for June.

The latest data corresponds to the survey week for the July report, which will be released in early August. If the results hold up again, it suggests that report could show a loss of millions of jobs, just as enhanced unemployment benefits from the federal government are in danger of expiring.

If the $600 weekly federal supplement to unemployment benefits expires, more than 20 million Americans could soon see their weekly income fall by half. But it wont just be individual recipients who will suffer, Ben Casselman reports:

The federal payments are injecting billions of dollars into the economy each week, money that flows to landlords, grocery stores, retailers and countless other businesses.

Ernie Tedeschi, a former Treasury Department official and an economist at Evercore ISI Research, has estimated that if the payments ceased, the United States gross domestic product would be 2 percent smaller at the end of 2020 and there would be 1.7 million fewer jobs nationwide.

Congress returned from recess this week to consider a new relief package, which could include at least a partial extension of the extra unemployment benefits. Senate Republicans and the White House are considering a roughly $1 trillion package that would retain the program but scale it back. Democrats are pressing to continue paying the full $600 per week.

But Congress seems unlikely to act before benefits lapse.

These unemployment benefit checks are really doing a large job in propping up spending by these unemployed households, said Joseph Vavra, a University of Chicago economist. If they expire, he said, theres a good chance that what is now an unemployment problem becomes a foreclosure crisis and eviction crisis.

Stocks on Wall Street rose on Wednesday, but the gains were constrained by rising tension between the United States and China.

After an early dip, the S&P 500 rose more than half a percent. Shares in Europe and Asia were mostly lower.

Relations between the United States and China, two giant trading partners, have been worsening recent weeks, as the Trump administration has tightened the reins on Chinese diplomats, journalists, scholars and others in the United States. In the latest action, the White House told China to leave the its consulate in Houston by Friday. China warned that it might retaliate.

News of the consulates closure had an immediate impact in financial markets, with stock futures falling and trading in Treasury notes, gold and oil also reflecting a jolt of nervousness.

But investors on Wall Street have shaken off a number of concerns lately, including about the surge in coronavirus cases and deaths in the United States. On Tuesday, President Trump, in a shift from his usual rosy forecasts, told reporters that the outbreak would probably get worse before it gets better. And a valuable economic lifeline for millions of Americans $600 a week in extra unemployment benefits is about to expire if Congress doesnt extend it.

Recent gains have come as lawmakers in Washington haggle over another economic aid package, and as some large businesses have reported better than expected results, or signs of improvement.

On Wednesday, for example, shares of Best Buy jumped almost 8 percent after the electronics retailer reported that sales were rebounding as stores reopened. Also sharply higher Wednesday was Pfizer, which rose more than 5 percent after the Trump administration said it would pay nearly $2 billion for up to 600 million doses of a Covid-19 vaccine. Shares of BioNTech, a German company that is developing the vaccine with Pfizer, were up nearly 14 percent.

After Walmart, Americas largest retailer, announced on July 15 that it would mandate in-store mask-wearing, a flurry of other companies, including Kroger, Target and Walgreens, followed suit. This means that customers will be required to wear face masks in stores even in places without local mask ordinances.

The National Retail Federation has encouraged companies to set nationwide mask policies to protect employees and shoppers.

Some chains, however, have moved in the opposite direction. After putting in place a customer mask requirement nearly two weeks ago, Dollar Tree and Family Dollar reversed course on July 20, saying they would require masks only if mandated by state or local rules.

With profit bolstered by hundreds of millions of dollars in federal stimulus money, HCA Healthcare, the giant for-profit hospital chain, reported much higher second-quarter earnings on Wednesday, even as its revenue fell when its huge network of hospitals treated fewer patients during the pandemic. The company reported $1.1 billion in net income for the three months that ended June 30, a 38 percent jump from the same period in 2019, on lower revenue of $11.1 billion. HCA, already a major beneficiary of hospital bailout money, said it had received a total of $1.7 billion from the federal government so far.

United Airlines said its revenue will max out at about 50 percent of last years haul if a vaccine does not become available. The airline expects passenger revenue in July, August and September to be down about 83 percent from the same period last year, a slight improvement over the nearly 94 percent decline the airline reported for the second quarter on Tuesday.

Go here to read the rest:

Tesla Reaches a Milestone With Another Quarterly Profit - The New York Times