Tesla's (NSDQ:TSLA) earnings miss during the Q2 report may not have come as much of a surprise to most investors, but it seems that analysts are far off the mark when it comes to estimates. Despite Tesla’s delivery numbers for Q2 being released a month before the earnings call, they estimated a loss of only 52 cents. The actual EPS figure came in at $1.06 - nearly double what analysts predicted they would lose.
But that’s not really the surprising part either. The truth is that Tesla’s stock does not depend on how much they earn. Investors are well-attuned to the fact that it’s deliveries that matter the most. You can see that in the way Tesla stock moved up after the earnings call despite the dismal performance on earnings.
Now back to its pre-earnings-call level of around $225, TSLA is obviously a stock that moves not on quarterly results, but news from the company. The upward movement was primarily because the company stood by its full fiscal delivery estimates.
The Delivery Factor
The vehicle delivery misses over the last two quarters seem to have already been priced into the stock heading into the earnings call. That’s the reason it didn’t dip despite an adjusted loss of nearly double what analysts expected. On the revenue front, they did exceed the $1.56 billion expectation, reporting $1.6 billion for the quarter. Quoting from an earlier press release by Tesla:
“Due to the extreme production ramp in Q2 and the high mix of customer-ordered vehicles still on trucks and ships at the end of the quarter, Tesla Q2 deliveries were lower than anticipated at 14,370 vehicles, consisting of 9,745 Model S and 4,625 Model X. In total, 5,150 customer-ordered vehicles were still in transit at the end of the quarter and will be delivered in early Q3. That amount was higher than expected (there were 2,615 vehicles in transit to customers at the end of Q1) and is more than a third of the number of cars that completed delivery in Q2.”
What’s Keeping the Stock Up?
To put it another way, morale is still high because Tesla expects to at least meet the lower end of their 80,000 to 90,000 deliveries for the whole year. Q3 deliveries are expected at 2,220 per week and Q4 is expected to show 2,400 per week. That will bring them up to 50,000 for the third and fourth quarter combined, for a grand total of near 80,000 for the year.
Now, whether or not that will happen remains to be seen, but this is where the rubber meets the road for Tesla. They’ve effectively pushed any major market judgment on the stock by two quarters. If Q3 doesn’t come on track towards the target of 80,000 for the full fiscal, we could see a pullback of sorts after the next delivery announcement. Again, I don’t think Tesla will be taking a hit on the Q3 call, but the delivery numbers are critical to the stock’s performance.
Another major reason why they didn’t take a hit this quarter is due to the expectation of break-even revenues for the full fiscal. Quoting Jason S. Wheeler, Tesla’s Chief Financial Officer, from the Q2 Earnings Call:
“If we can execute on our production and our delivery goals in the second half of the year, we got a great chance to be non-GAAP profitable.”
In the News
Tesla’s decision to buy SolarCity is not something that I think should be happening at this critical time in the company’s history. Why? Because there’s tremendous pressure on Tesla Motors to deliver at least 50,000 cars in the next five months, and they cannot afford the kind of distraction that the acquisition will surely bring.
But it’s not even about the distraction. It’s the money they need for their ramp up plans to execute those deliveries. The Gigafactory may not be participating in this fiscal’s production needs, but it is nonetheless taking up huge resources from Tesla Motors from a financial standpoint.
The best thing that came out of the earnings call, in my opinion, is their announcement of yet another car - a compact crossover dubbed the Model Y.
If you look at Tesla’s lineup of cars since the Roadster, you’ll see a definite trend towards greater affordability. Compared to the $109,000 tag of the Roadster, the Model 3 only costs one-third of that. If Tesla can bring in the Model Y at an even more attractive price point, they have the opportunity to stretch the bounds of the current market for electric vehicles.
This is what CEO Elon Musk said about the Model Y during the Q2 Earnings Call:
“I mean, also to be clear like the priority vehicle development after the Model 3 would be the Model Y, I guess, the compact SUV, because that's also a car that where we expect to see demand in the 500,000 to 1,000,000 unit per year level. So it's the obvious priority after the Model 3.”
With major plans afoot and an expectant Mr. Market waiting for Tesla to fail so it can hammer the stock to much lower levels, the SolarCity bid is something that will pose a challenge to the time, money and energy that Tesla executives currently put into managing car deliveries.
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