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.
“We believe the progress we made in the first half of this year has positioned us for a successful second half of 2020,” Tesla said in a statement. “Production output of our existing facilities continues to improve to meet demand, and we are adding more capacity.”
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 pandemic’s negative impact on sales in the United States.
Tesla appears to be weathering the pandemic better than some other automakers. In China, the world’s 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. Musk’s compensation is driven largely by the performance of Tesla’s stock. And as the carmaker’s 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.
Tesla’s 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 Tesla’s stock market value to around $290 billion, or $100 billion more than Toyota’s market value.
Mr. Musk’s 2018 compensation package was designed to release shares in 12 installments as certain milestones are met. The first goal was for Tesla’s 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.
Tesla’s 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 company’s 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 Tesla’s 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. That’s more than twice the $25 billion worth of shares available to Mr. Musk through the 2018 package. Amazon’s 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.
It’s unusual for companies with market values as large as Tesla — roughly $290 billion — not to be included in the S&P 500. But the company’s inability to consistently generate profits has made it ineligible so far. (Criteria for inclusion require the sum of the company’s fully audited profits in the four most recent quarters to be positive.)
The lack of profits hasn’t bothered investors. Tesla 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 there’s 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 isn’t supposed to know themselves,” Mr. Silverblatt said. “Nobody even calls them.”
Microsoft on Wednesday said its revenue rose 13 percent in the last quarter despite the slump in the economy. The company’s 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 company’s 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 private payroll firm ADP. 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.
“It’s 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. “It’s 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 his team’s research showed that was “clearly not right,” because much of the money appears to have gone to help businesses that would not likely have folded shop without aid.
United Airlines is expanding its mask policy and will begin requiring passengers to wear face coverings not only on board its planes but also in its lounges and baggage claim areas and at its gates, customer service counters and kiosks.
“A mask is about protecting the safety of others, and I’m proud of the aggressive and proactive steps United Airlines has taken to ensure people are wearing a face covering,” the airline’s chief executive, Scott Kirby, said in a statement.
The airline joins Delta Air Lines and Southwest Airlines in requiring masks throughout the airport. United’s policy will go into effect on Friday and does not apply to children under 2 years old. Passengers who need an exemption from the rule are asked to contact United ahead of time or speak to an airline representative at the airport.
Customers who fail to follow the rule will receive a verbal reminder and be offered a free mask. Those who still refuse to wear a face covering will be provided a written warning and face being barred from future flights.
United has flown millions of passengers since it introduced a mask policy aboard its flights and has so far barred fewer than 30 passengers from future travel.
“It is a distinctly small minority that don’t want to wear a mask and we’ll welcome them back when this is all over, when masks aren’t required, but they’re not going to be flying on United during the pandemic if they won’t wear a mask,” Mr. Kirby said Wednesday.
The policy was developed with help from the Cleveland Clinic, which United has partnered with for guidance on crafting health and safety policies.
Hospitals may be pleading financial hardship in seeking $100 billion more in funding from Congress, but some organizations are already prospering from the government’s largess.
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. The news surprised investors, who sent the stock 10 percent higher in early trading.
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. Executives told investors they were not sure how much of the latest funding the company would be able to keep under stricter requirements to qualify for the funds, but it recorded $822 million before taxes during the most recent quarter.
Sam Hazen, HCA’s chief executive, said on a call with analysts that the system had treated 33,000 Covid-19 patients hospitalized at its facilities, including 5,000 currently. The company operates a large number of hospitals in states like Florida and Texas that are experiencing a sharp surge in cases.
HCA was not immune to the pandemic’s impact on its business. Revenue from emergency room visits and outpatient surgeries was down by a third, although executives said patient volumes had started to rebound in recent weeks. They would not predict when all of their patients would eventually return.
Mr. Hazen, who stressed that HCA had not furloughed or laid off any employees, emphasized the pandemic was not over. “It’s not something that’s going to go away necessarily, but our ability to scale up, scale down, scale up, I think has been proven,” he said.
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 bureau’s weekly Household Pulse Survey, an experimental effort to track the pandemic’s 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 won’t 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, “there’s 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 consulate’s 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 doesn’t 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, America’s 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.
There’s a limit to how much revenue United Airlines expects to see without a widely available vaccine: about half of last year’s haul.
“Our best guess is demand, as measured by revenue, will recover over time to be down approximately 50 percent and then plateau at that level until a vaccine is widely distributed,” Andrew Nocella, the airline’s chief commercial officer, said in a call Wednesday with analysts and reporters.
Scott Kirby, the airline’s chief executive, was reluctant to forecast when that might come to pass, but said on the call that United was conservatively planning that a vaccine won’t be widely available until late next year.
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. United suffered a $1.6 billion loss during the quarter, compared with a $1 billion profit a year ago.
The three months that spanned the quarter were the worst of the pandemic for airlines, with passenger traffic falling as much as 96 percent on some days in April compared with last year. Travel had started to recover in May and June, but faltered in recent weeks as infections spread and travel restrictions mounted. The number of people screened at federal airport checkpoints on Tuesday was 79 percent lower than a year ago, its lowest relative level in weeks.
But United is far less focused on passenger numbers than revenue, Mr. Kirby said.
“Our focus really is on cash flow and cash generation,” he said on Wednesday.
As of Monday, United had about $15 billion of cash on hand, which it expects to increase to $18 billion by the end of September. The airline lost an average of $40 million a day in April, May and June and aims to reduce that to $25 million per day in the third quarter.
On Tuesday, Mr. Kirby joined the chief executives of American Airlines, Lufthansa Group and International Airlines Group in asking the United States and European Union to restore trans-Atlantic travel and to test passengers for the coronavirus.
International flights are more lucrative than domestic ones, and the flights between Europe and the United States are among the most valuable for airlines. For United, flights across the Atlantic accounted for about a quarter of its profit last year.
In a global economy troubled by the coronavirus pandemic, China’s recovery has offered a glimmer of growth. Chinese stocks rose by nearly a trillion dollars in the span of a few short weeks, shocking even the most sanguine of financiers.
Along with the foreign money pouring in, a big piece of the momentum, as in many Chinese rallies, is fueled by ordinary investors.
“It’s just like gambling,” said Wu Hao, a small-time investor from Beijing who rode another remarkable rally in Chinese stocks, in 2015. Mr. Wu’s investment more than tripled. “Brave people can make money,” he said. But when the market crashed, he lost $2,800.
Now small investors Mr. Wu and foreign whales with billions of dollars are watching the same elements of delirium in the market and wondering if history will repeat itself.
Even with the ups and downs of recent weeks, China’s stock market is still worth a quarter more than it was a year ago, bringing tremendous wealth to investors. The collective value is hovering around a $10 trillion marker.
💻Best Buy will raise the starting hourly wage for all U.S. employees to $15, effective Aug. 2, the electronics retailer said on Tuesday. The company said sales were up by about 2.5 percent so far this quarter, which started May 3, over the same period last year. The company furloughed 51,000 hourly store employees in the United States on in April, out of a total of about 125,000 employees. Hourly employees who continued to work received incremental hourly appreciation pay, which will end on Aug. 1.
📱 Snap, the maker of Snapchat, said on Tuesday that it had brought in more money than expected during the recent quarter despite advertisers cutting back their budgets during the pandemic. The social media firm generated $454 million in revenue, a 17 percent increase from the prior year, and lost $326 million, an increase of 27 percent. Daily active users of Snapchat grew to 238 million. During shelter-in-place orders in the first quarter of the year, Snapchat saw users rush to the platform as a means of staying in touch with friends and family while in isolation. But the surge faded faster than Snapchat expected, causing the company to miss its guidance on active users by 1 million.
🥤 Coca-Cola reported on Tuesday a drop in revenue of 28 percent in the second quarter to $7.2 billion, and net income dropped 33 percent to $1.759 billion. Coca-Cola attributed much of the declines in the quarter to continued weakness in its away-from-home channels, such as restaurants and theaters, which either remained largely closed or had limited capacity in the quarter globally. That segment of the market makes up about half of Coca-Cola’s total revenue.
🤵 Tailored Brands, the owner of Men’s Wearhouse and the JoS. A. Bank chain, announced plans on Tuesday to eliminate 20 percent of its corporate positions and close up to 500 of its retail stores, citing business disruptions resulting from the coronavirus pandemic. Tailored Brands has struggled to adapt to the rise of e-commerce, while saddled with extensive debt. On May 2, the company had a long-term debt of $1.4 billion and $244.2 million of cash and cash equivalents.
🦃 Walmart said on Tuesday that it would not open on Thanksgiving Day, pushing back the traditional start of the holiday shopping season as a show of appreciation for its workers. “We know it’s been a trying year, and you’ve stepped up,” John Furner, the head of Walmart’s U.S. operations, said in a memo to employees. The company, which is the world’s largest retailer, said it made the decision to close on the holiday after one of its employees wrote a letter suggesting it.
🛫 The Boeing 737 Max could be in the air in a few months. The Federal Aviation Administration said on Tuesday that it was close to proposing design changes and crew procedures that would address its safety concerns. The public would have 45 days to comment on the proposed changes before the F.A.A. made its final decisions. A number of hurdles remain before the agency allows the plane to fly again, but the F.A.A.’s decision to move ahead is nonetheless a big shot in the arm for Boeing.