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Does Tesla's Record Vehicle Deliveries in Q2 Assure Profits?

Nilanjan Banerjee
The Zacks Analyst Blog Highlights: Autoliv, PACCAR, Harley-Davidson, AutoNation and Tesla

Tesla TSLA gained nearly 5% after reporting record-high quarterly vehicle deliveries. Total deliveries of vehicles — comprising Model S, Model X and Model 3 — through the June quarter of 2019 was better than the expectations of most analysts.  

Apparently, the stock is poised to scale higher as Tesla’s Q2 vehicles production and delivery data suggest that demand for the company’s electric cars is robust. However, many analysts are skeptical that the record deliveries may not guarantee profits for Q2.

Record Deliveries

Through the second quarter of 2019, Tesla has handed over a total of 95,200 vehicles that not only exceeds the year-ago quarter’s level but also surpasses the fourth-quarter 2018 record figure of 90,700.

Of the total Q2 deliveries, the count of Model S and Model X totaled 17,650, while the tally for Model 3 was considerably higher at 77,550. In the year-ago quarter, deliveries for Model 3 were 18,440 as compared with 22,300 combined deliveries of Model S and Model X.

Over the quarters, the company’s Model 3 sedan deliveries seems to have surged, beating the count for the more expensive and higher-margin vehicles like Model S and Model X.

Profits Unlikely

Despite the higher deliveries of premium-margin sedan cars — Model S and Model X — both in the December quarter of 2018 and the June quarter of 2018 as compared to the second quarter of 2019, Tesla reported a non-significant profit figure of $139 million in fourth-quarter 2018 and a loss of $718 million in the second quarter of the same year.

Hence, the increased demand for mass-market sedan vehicle Model 3 in the second quarter of 2019 is unlikely to make any meaningful contribution to the company’s bottom line, according to The Wall Street Journal. This skepticism is also being reflected in the Zacks Consensus Estimate for Tesla’s bottom line for the June quarter of this year which stands at a loss of 63 cents.

It is quite widely known that the price of Model 3 has been cut to roughly $35,000 as the company has been working through the January to June period of 2019 to expand the reach of the compact car to customers.

Is Tesla’s Secret Lab for Battery Cells a Savior?

However, media reports claim that Tesla’s effort to make Model 3 more accessible by lowering price is not sustainable considering the major cost component of the electric car — its battery.

CNBC revealed that Tesla, carrying a Zacks Rank #3 (Hold), has been striving to manufacture battery cells in its undisclosed laboratory. This will significantly lower Tesla’s dependence on Panasonic Corporation PCRFY, which has been supplying batteries to the Silicon Valley auto maker over the past several years. Once Tesla starts manufacturing batteries for its own cars, the company will be able to deliver electric cars that are cheaper yet more efficient, added CNBC.

The Last Word

The odds are against Tesla with analysts raising questions about its vehicle handover speed, per The Wall Street Journal. To reach the low end of its delivery guidance for 2019 of 360,000 to 400,000 cars, the company needs to speed up deliveries through the July to December period.  

Moreover, most analysts do not expect Tesla to report profit in 2019, slashing estimates over the last 60 days for the company’s bottom line, which is currently pinned at a loss of $1.16.

With skepticism marring Tesla’s progress, investors might want to keep eyes on other major automotive companies with strong focus on the electric vehicle market. A few names in the space are General Motors GM, Ford Motor Company F and Honda Motor Co., Ltd. HMC. While General Motors and Honda Motor carry a Zacks Rank #3 (Hold), Ford Motor sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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