Tesla Analysts Slash EV Delivery Forecasts After Turbulent China Quarter

Tesla began the second quarter on a tear after starting 2022 with its biggest profit and highest vehicle deliveries in company history, fueled by booming China business. But a severe Covid-related lockdown there that continued until this month, along with startup pains at the electric-car maker’s newest plants, has analysts slashing their forecasts for global delivery numbers it’s expected to report within the next few days.

The Austin-based company, which typically posts delivery and production numbers a day or two after the quarter ends, may report delivering about 258,000 EVs to customers worldwide, the average of analysts surveyed by Forbes. While that would be up 28% year over year, it’s down 17% sequentially from a record 310,048 deliveries in the first quarter, despite the addition of new factories in Germany and Texas. It’s also 18% below a consensus estimate of 315,000 deliveries at the start of the quarter.

“Covid impacts on its Shanghai plant and the fact its new Austin and Berlin plants are still running at fairly low capacity utilization rates,” says Nelson Garrett, equity analyst for CFRA “So the key question is the magnitude of the decline and whether the Fremont factory was able to help support volumes.”

The slowdown in China, Tesla’s most profitable market, comes after a period of relative stability in terms of profit and production growth for Elon Musk’s EV powerhouse. Along with a lower pace of deliveries the quarter also brought Tesla’s first large-scale job cuts that Musk, who expects the U.S. economy to fall into recession, said will affect about 3.5% of employees worldwide. This week those firings included the elimination of about 200 jobs for people working with Tesla’s Autopilot team in San Mateo, California, including media reports. Musk also recently complained about tough startup conditions at the new Berlin and Austin Gigafactories that are costing the company “billions.”

“Both Berlin and Austin factories are gigantic money furnaces right now,” Musk said in a May 31 interview with fans from Tesla Owners Silicon Valley. “Berlin and Austin are losing billions of dollars right now because there’s a ton of expense and hardly any output.”

Musk was far more upbeat in the company’s first-quarter results call, initially anticipating that the current three-month period could see deliveries remain similarly robust.

“Notwithstanding new issues that arise, I think we will see a record output per week from Giga Shanghai this quarter, albeit we are missing a couple weeks,” the billionaire entrepreneur told analysts and investors on April 20. “Most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower. But it’s also possible we may pull a rabbit out of the hat and be slightly higher.”

Neither he nor Tesla has provided updated guidance for the quarter since then.

Current delivery forecasts range from relatively bearish expectations of 232,000 vehicles from Mizuho Securities analyst Vijay Rakesh and 245,000 for Deutsche Bank’s Emmanuel Rosner. More bullish quarterly forecasts include 277,000 deliveries from Wedbush Securities’ Dan Ives and 270,000 from Morgan Stanley’s Adam Jonas and CRFA’s Nelson.

The extent to which slower production and sales in China, which saw EV demand plummet in April and May, will be a key factor to watch when Tesla releases earnings results next month. That’s because of higher margins the company enjoys in that market due to lower production costs.

Second-quarter “production and margins are set to disappoint as Shanghai shackles output,” Barclays analyst Brian Johnson said in a research note this month. He now expects Tesla to report delivering 251,000 vehicles for the quarter.

The Shanghai plant is also likely to be idled briefly in July to accommodate assembly line modifications that will allow it to boost production later this year beyond its current capacity. Likewise, as operations smooth out in Texas and Germany, the company should see production gains as 2022 progresses.

“The good news is that Tesla’s operational challenges seem to be well-understood by investors and volumes should rebound strongly in the second half of the year,” says Nelson.

Tesla shares fell 1.8% to $685.47 in Nasdaq trading on Wednesday. The stock has fallen 37% this quarter.