Tesla Gets Ready To Report After Upside Surprise On Q2 Vehicle Deliveries

Considering all the big news Tesla Inc TSLA delivered over the last two weeks, its Q2 earnings report this afternoon might seem a bit anticlimactic.

Arguably the biggest (and best) news of the quarter is already digested. The company reported better-than-expected car deliveries for the second quarter. Earlier this month, TSLA said it delivered 95,200 total vehicles in Q2, ahead of Wall Street’s estimate for 91,000. That’s the widest beat in at least three years, according to market forecaster FactSet.

It’s also a huge turn-around from the company’s disappointing 63,000 in Q1, and might reflect some buyers deciding to jump in ahead of the Federal tax credit on TSLA’s cars being halved on July 1, Forbes noted. In Q2, the Model 3 posted deliveries of 77,550, surpassing consensus estimates on Wall Street for 74,100. Combined deliveries for the Model S sedans and Model X SUVs were 17,650, beating estimates of 16,600, according to FactSet data.

The delivery data also might confirm that the March quarter wasn’t quite as bad as people had thought, because thousands of the company’s cars were in transit at the end of March, but those deliveries ended up occurring in Q2. In other words, deliveries over time might be a little smoother than the quarter-to-quarter numbers show.

Shares Took Another Wild Ride in Q2

Smoothness isn’t a word often associated with TSLA, either the company itself or its shares. The Q2 was no different, with TSLA bouncing back quickly from a May sell-off that carried shares of the company down below $200 for the first time since late 2016. Shares recently were back above $250.

Where they go from here depends partly on whether TSLA can meet its delivery goals for the remainder of 2019. As Barron’s noted, TSLA delivered 158,000 cars in the first half—a number it might update when it reports earnings. Its goal for the year is 360,000 to 400,000, meaning it has to do a lot better in the next six months than it did in the first six months of 2019.

It might be interesting to listen to the company’s earnings call to see if executives provide investors a road map of how they plan to get to that point, especially considering the falling government tax incentives for electric car buyers.

Vehicle production was another Q2 highlight, rising to a record 87,048, TSLA said. That included 72,531 of its Model 3 and 14,517 of its Model S/X. Customer vehicles in transit at the end of the quarter were more than 7,400.

Even as it tries to grow production, TSLA has been under pressure to cut costs. The company has made workforce cuts this year, and this month it announced a revamping of its vehicle lineup. The company cut back the total number of vehicles available, making its lower-end Model 3 more affordable while raising prices on its higher-end Models S and X.

It did this, it said in a statement, “To make purchasing our vehicles even easier.” The pricing adjustment, it added, is “in order to continue to improve affordability for customers.”

Tesla said it’s reducing the price of the Model 3 by $1,000 to $38,990. The company will no longer sell the standard range versions of the Model S and Model X, raising the minimum amount people have to pay for those cars. The base version of the Model S is rising to $79,990 from $75,000, while the price of the Model X is increasing to $84,990 from $81,000.

However, lower prices for the Model 3 could mean lower margins for TSLA, which might lead to pressure on profitability. Speaking of which, analysts don’t expect a profitable Q2 despite the big deliveries. This would be the second “red” quarter in a row for the company, a troubling sign after it posted consecutive profitable quarters in the second half of 2018. The decision to lower prices also has some analysts questioning whether demand is there for TSLA’s vehicles.

In a sign that TSLA continues to work on expense control, it said it made “significant progress” in Q2 “streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position.”

Cash Check

The company’s cash position is usually something analysts monitor at earnings time, and this quarter is no different. Tesla’s wallet looked lighter at the end of Q1 due to a bond payment, expansion costs, and a high number of vehicles in transit, analysts said. One question is whether that improved in Q2, and whether management can meet its forecast for positive free cash flow in the quarter. That might help soothe chronic worries about how quickly TSLA goes through cash.

Among investors, TSLA shares continue to see a lot of love from the Millennial generation. The company’s stock has been a long-time favorite of younger investors, according to the Investor Movement Index, or the IMX, a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of retail investors.

For TSLA, the “magic” price point in early June seemed to be $200 a share. When the stock fell below that, retail investors appeared to become buyers and come back into the stock in a heavier way.

It’s pretty impressive how TSLA continues to attract younger people to its stock. People are buying what they know, but, like anything, it’s also important to do the research before buying.  Caveat emptor applies to any stock, not just TSLA.

Figure 1: 200 CLUB: Shares of TSLA appeared to get a lot of buying interest earlier this year when they fell briefly below $200 a share. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Tesla Earnings and Options Activity

For Q2, TSLA is expected to report adjusted earnings of negative-$0.42 per share, up from negative-$3.06 the prior-year quarter, on revenue of $6.42 billion, according to third-party consensus analyst estimates. That revenue would represent a 60.4% rise from a year ago.

Options traders have priced in an 5.5% stock move in either direction around the coming earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Implied volatility was at the 21st percentile as of this morning. 

Weekly options activity has been higher in the 240- and 245-strike puts and the 275- and 285- strike calls.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

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