Tesla reported expectations-beating deliveries in its second quarter. The implications of this result for investors depend on how Tesla achieved those deliveries.
If Tesla — 3.5% of its shares are sold short, according to the Wall Street Journal –accomplished the result by cutting prices, revenues and profit margins could fall short of investors’ expectations.
If that happens, Tesla’s stock price could fall — unless it raises its guidance for the third quarter.
In the meantime, on July 2 an influential analyst said the expectations-beating delivery numbers would burn Tesla bears.
Tesla’s Expectation’s Beating Second Quarter Shipments
Tesla delivered 83% more vehicles in the June-ending quarter than it did during the same period in 2022. According to CNBC, in the latest quarter, the electric vehicle leader — with 62% market share in the first quarter of 2023, according to Kelley Blue Book — delivered 466,140 vehicles — 8% more than Street Account expected.
Were the expectations-beating deliveries due to price cuts? Piper Sandler senior research analyst Alexander E. Potter wrote in a June 26 note Tesla prices were “stable” in the second quarter.
Tesla did engage in some price cuts during the quarter. About 96% of Tesla’s second quarter deliveries were of its Model Y crossover and Model 3 entry-level sedan — both of which “are now eligible for a $7,500 tax credit in the U.S. under the Inflation Reduction Act,” according to CNBC.
Moreover, the Journal noted, as of late June, Tesla was “offering thousands of dollars off certain vehicles it had in stock” on top of those tax credits.
Potter noted Tesla gave steep discounts in the first quarter — during which the average Tesla price fell 13% to $46,000 — and wrote third quarter price cuts would “reignite concerns” about profit margins.
CEO Elon Musk warned investors against selling Tesla stock short. As he tweeted before the announcement of second quarter deliveries, “Please advise people to be wary of margin loans. Tesla has always been a high variability stock, often with no obvious rhyme or reason. We are confident about long-term value creation, but cannot control the manic-depressive nature of the stock market.”
Will Tesla Fall Short Of Revenue And Margin Expectations?
Do these expectations-beating deliveries mean Tesla’s operating margin will fall further? In the first quarter of 2023, Tesla’s operating margin declined from 19.2% to 11.4% between the first quarter of 2022 and 2023, according to the Wall Street Journal.
Tesla has not provided clear guidance for revenue and operating margins in the second quarter. When Tesla reported its first quarter results April 19, Musk merely told investors he expected Tesla to produce between 1.8 million and 2 million vehicles in 2023, according to Investor’s Business Daily.
In April, three analysts emphasized their concerns about Tesla’s margin compression. According to IBDIBD
, these analysts included:
Wedbush Tesla price target: $215. Dan Ives wrote, “This margin compression and price cut narrative must be carefully managed over the coming quarters as it now emerges as a clear overhang on the stock.”
Morgan Stanley Tesla price target: $200. Adam Jonas revised the firm’s Tesla stock price target down $20 to $200,
Tesla price target: $175. Analyst Itay Michaeli lowered Citigroup’s price target from $192 based on how Tesla’s margin miss “confirms” vehicle price cuts were not offset to the extent previously expected.
The average forecast for Tesla’s second quarter revenue was $24.27 billion in June — 44% more than Tesla’s second quarter 2022 revenue of $16.9 billion. Analysts project Tesla’s annual revenue to rise 23% to $100.2 billion by the end of 2023, according to Investors.com.
Ives sees Tesla bears poised to suffer a world of hurt in the wake of its strong second quarter deliveries. As he told TheStreet.com, “Tesla continues to play chess while other EV players are playing checkers and this was another trophy case quarter for Musk & Co. despite much skepticism from the Street the last few months and will create some fireworks for the bears.”
Tesla stock has defied April’s bearish analyst predictions. Its shares have increased 142% in the first half of 2023 to $262 a share — 37% short of the $414 a share at which they peaked in November 2021.
If second quarter Tesla prices were stable, as Potter wrote, Tesla’s second quarter financial report will send revenue and profit above expectations and its shares will soar closer to where they peaked in 2021.
Read More If Tesla accomplished the result by cutting prices, revenues and profit margins could fall short of investors expectations.