If you have been following Tesla (TSLA, Financial) for a while, you may have noticed that the stock swings wildly after every earnings call. To some, it might even seem like a stock that moves more on the news rather than the nature of the earnings results themselves.
As a disruptor, Tesla’s valuation is more dependent on what the company will do two to three years down the road, rather than what happened in the last three months. But, a Tesla earnings call is the one conference that investors have relied on to make the news, leading to wild swings in its stock. Case in point is their second quarter call, which did nothing to move the stock down, despite a massive miss on earnings estimates.
Not a Great Quarter
Tesla’s second quarter results were as bad as it can get for the company. The electric car maker reported an adjusted loss of $1.06 with $1.56 billion in sales, while the market was expecting adjusted loss of 52 cents and $1.6 billion in revenue. The car maker doubled the earnings estimate for the worse.
In a way, it was a horrible miscalculation on the part of most of the analysts because Tesla’s second quarter sales numbers were published on July 3, when it was already out that Tesla missed its delivery estimates by a mile.
“Due to the extreme production ramp in Q2 and the high mix of customer-ordered vehicles still on trucks and ships at the end of the quarter, Tesla Q2 deliveries were lower than anticipated at 14,370 vehicles, consisting of 9,745 Model S and 4,625 Model X. In total, 5,150 customer-ordered vehicles were still in transit at the end of the quarter and will be delivered in early Q3. That amount was higher than expected (there were 2,615 vehicles in transit to customers at the end of Q1) and is more than a third of the number of cars that completed delivery in Q2.”
- Tesla
Why those consensus estimates were so high is something that only the analysts who came up those numbers would know.
Tesla’s initial plan was to hit 80,000 - 90,000 deliveries this year. In the first half of this year, Tesla delivered 14,820 vehicles in Q1 and 14,370 in Q2 for a grand total of 29,190, which is wildly off track to its annual estimates. But the company remains upbeat about its delivery numbers for the year, expecting to hit 2,220 per week in Q3 and 2,400 per week in Q4, thereby allowing the company to achieve 50,000 deliveries during in the second half of the year.
The Goal vs. The Distraction
If there was one big announcement that come out of the earnings call, it was this:
“If we can execute on our production and our delivery goals in the second half of the year, we got a great chance to be non-GAAP profitable.”
- Jason S. Wheeler, Tesla’s Chief Financial Officer at the Q2 Earnings Call
If that happens, it will he a huge win for company as it will silence a lot of critics in the market who continue to question the viability of the company itself.
I am not a great fan of Tesla’s move to buy SolarCity (SCTY, Financial), no matter how much Elon Musk pitches it to us. I strongly believe it is a huge distraction and will add a load of debt to Tesla’s books at a time when the company needs billions in cash for its ramp up.
It may be a great buy 10 years from now, but with 373,000 customers waiting for their Teslas to be delivered to them within two years and the company still struggling to hit their own delivery estimates, I just cannot see the reason to add more madness to the mix.
Tesla hardly discussed the SolarCity acquisition during the second quarter earnings call, so we will just need to keep following the news (or Musk’s Twitter account) to get more on that.
Beyond Model 3
The next big announcement that came out of the earnings call was that Tesla has already starting thinking about its work beyond the Model 3. The company is planning to develop Model Y, a compact SUV.
Of course, it will be many years before Model Y sees the light of day because Tesla’s efforts are now fully concentrated on getting the Model 3 to potentially hundreds of thousands of customers around the world. But, it is representative of how Elon is taking the top-down approach to Tesla’s product line up, starting with the Roadster, which cost upwards of $109,000, to the Model 3, priced at a third of that, to now trying to go even lower with the Model Y.
Elon Reeve Musk - Chairman, Product Architect and CEO at Tesla’s Q2 Earnings Call:
“I mean, also to be clear like the priority vehicle development after the Model 3 would be the Model Y, I guess, the compact SUV, because that's also a car that where we expect to see demand in the 500,000 to 1,000,000 unit per year level. So it's the obvious priority after the Model 3.”
It was a disastrous quarter in terms of expectations versus reality, but the market knew what was coming and the bad news was already priced into the stock. Although, getting to even 80,000 deliveries is a big task, the company’s stand on estimates may have helped soothe the frazzled nerves of investors.
All eyes will now be on their third quarter delivery actuals, because if Tesla is not on track by then, it is more than likely that the stock will take another hit. Until then, it will probably stay where it is, waiting for more news before making a move.
Disclosure: I have no position in any of the stocks mentioned and no intention to initiate any position in the next 72 hours.
Start a free 7-day trial of Premium Membership to GuruFocus.
