SINGAPORE (July 8): Tesla shares surged as a record quarter of deliveries alleviated the worst fears about demand for the Elon Musk-led company’s electric vehicles.
The Model 3 maker handed over 95,200 cars to customers in the three months ended June, exceeding the previous best mark set in the last quarter of 2018. Tesla’s delivery count exceeded all but one analyst’s estimate in a Bloomberg News survey.
Tesla shares jumped as much as 7.1% during US pre-market hours. The stock had fallen 33% for the year through the end of regular trading in New York on July 2, in part due to demand concerns that the company’s billionaire CEO has repeatedly disputed.
While the results go a long way towards contradicting Tesla’s doubters, it remains to be seen whether this level of demand is sustainable — or profitable. The US$3,750 ($5,086) US federal tax credit buyers were eligible for was cut by half beginning July 1, and deliveries tailed off the last time the incentive shrank. Musk has also said the company will post a loss for the quarter, then report positive earnings in the second half.
Tesla also left out of its statement any mention of its full-year forecast for 360,000 to 400,000 deliveries, a projection it reaffirmed in its release a quarter ago. Tesla representatives did not respond when asked whether the company is sticking with its guidance. It will have to average more than 100,000 units per quarter in the second half to reach the low end of the range.
“The stock and future of Tesla all reside on the sustainable demand going forward and elusive profitability,” Dan Ives, an analyst at Wedbush Securities, writes in a report.
Musk, 48, urged employees to “go all out” in the final days of Tesla’s first full quarter in which Model 3s made their way to buyers in Europe and China. Overseas demand contributed to deliveries of the sedan jumping to 77,550 units, more than all the vehicles Tesla handed over in the first quarter.
“The big picture is that something is happening around electric vehicles,” says Gene Munster, a managing partner of venture capital firm Loup Ventures and long-time Tesla bull. “The Model 3 is on fire.”
Several analysts raised their delivery estimates as the quarter came to an end, citing brisk sales to key European markets including Norway and the Netherlands, as well as the effect of incentives that Canada began offering in May to stoke purchases of battery-powered cars. Tesla does not break down deliveries by region in its release.
One reason Wall Street remains concerned about Tesla’s profitability is shrinking demand for the higher-margin Model S and Model X. Combined deliveries dropped to 17,650 in the quarter, down more than 20% from a year ago. Investors are concerned the cheaper Model 3 is cannibalising the company’s more lucrative vehicles.
With the US federal tax credit shrinking for 2H2019 and ending in 2020, Tesla also may have to lean more on overseas markets to buoy sales. That will test the California-based company’s ability to keep shipping and logistics costs contained.
Tesla is building a car and battery assembly plant near Shanghai, and Musk has said he hopes to pick a location for a similar factory in Europe by the end of the year. “We made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position,” Tesla says in its statement.
