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Will Rising Deliveries Drive Tesla's (TSLA) Q2 Earnings?

Zacks Equity Research
·5 mins read

Tesla TSLA is set to release second-quarter 2020 results on Jul 22, after the bell.

This Zacks Rank #3 (Hold) company’s results will likely reflect the favorable impact of growth in Model 3/Y deliveries, which forms a major chunk of the automaker’s overall deliveries.

(Also read: Can Tesla Keep its Earnings Streak Alive in Q2?)

Q1 Highlights

In the last reported quarter, Tesla posted earnings of $1.24 per share as against the Zacks Consensus Estimate of loss of 22 cents. Automotive revenues came in at $5.13 billion. Tesla had cash and cash equivalents of $8.1 billion as of Mar 31, 2020, compared with $6.3 billion as of Dec 31, 2019. This upside was mainly driven by a $2.3-billion capital increase.

During the March-end quarter, Tesla reported delivery and production of 88,496 and 102,672 vehicles, reflecting a year-over-year increase of 33% and 40%, respectively. The company reported Model 3/Y production and deliveries of 87,282 and 76,266 units, marking a year-over-year jump of 39% and 50%, respectively. The production rate of Model 3/Y continued to improve in during this period.

Production & Deliveries in Q2

With the Model 3 sedan being its flagship vehicle, Tesla has established itself as a leader in the EV segment. Solid performance and impressive design of its products are expected to have ramped up sales volumes during the quarter under review. Being the first mass-market electric car in North America and Europe, Model 3 is one of the best-selling vehicles. The car’s market-leading safety, performance and impressive specs have made it a huge success.

Despite the pandemic-led crisis, Tesla posted a smaller-than-expected decline in production volume during the second quarter. It registered production and deliveries of 82,272 and 90,650 vehicles, respectively, in the June-end period, lower than the 87,048 and 95,200 units delivered in the corresponding quarter of 2019. This downside mainly resulted from decline in levels of production due to the shutdown of its main factory in Fremont during the quarter. Though the delivery number is 4.8% down from the year-ago quarter, it beat analysts’ estimates and came in higher than the 88,400 deliveries recorded in the first quarter.

Moreover, Tesla’s Model Y crossover’s production started in January, while deliveries began in March, significantly ahead of schedule. This is also likely to have buoyed its earnings for the to-be-reported quarter. Notably, the Model 3/Y division registered production of 75,946 vehicles, while 80,050 vehicles were delivered. Model 3/Y deliveries were higher than the 76,200 deliveries made in the first quarter. However, the firm was seen facing major production issues with Model Y during the quarter under discussion that consumers in the United States were reluctant to purchase the battery-electric SUV and in some cases, refusing deliveries as well. The defects reportedly covered a variety of areas, including paint and trim issues, seat indentations and a loose seat belt.

Notably, in May, Tesla cut prices of its electric vehicles by around 6% in North America, as the firm restarted production at the Fremont plant. The Model S sedans were priced at $74,990, down from $79,990. Its Model X sport utility vehicles (SUVs) was priced at $79,990, from $84,990, and the cheapest Model 3 sedan was made $2,000 cheaper, priced at $37,990. Moreover, Tesla introduced price cuts in China in the same month, after price adjustments in the United States. The company slashed prices for the Model S and Model X it imports by around 4%, but kept the prices of the locally-made Model 3 cars unchanged.

Overall Earnings & Revenue Projections for Q2

The Zacks Consensus Estimate for loss in the to-be-reported quarter is pegged at 64 cents, narrower than the loss of $1.12 a share incurred in the prior-year quarter. The Zacks Consensus Estimate of $4.96 billion for sales indicates a 21.82% decrease on a year-over-year basis.

Other Stocks to Consider

Here are some other companies from the same space, which according to our model also have the right combination of elements to post an earnings beat in the to-be-reported quarter.

OReilly Automotive, Inc. ORLY has an Earnings ESP of +50% and carries a Zacks Rank #2 at present. The company is slated to release second-quarter 2020 earnings on Jul 29.

General Motors GM has an Earnings ESP of +13.07% and currently carries a Zacks Rank #3. The company is slated to release second-quarter 2020 earnings on Jul 29. You can see the complete list of today’s Zacks #1 Rank stocks here.

LKQ Corp. LKQ has an Earnings ESP of +41.49% and carries a Zacks Rank #3 currently. The company is slated to release second-quarter 2020 earnings on Jul 30.

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