Tesla Stock Quivers On Weak Q2 Delivery Numbers

Key takeaways

• TSLA shed over 4% intraday Tuesday before rebounding to close up 2.55% in the session
• The initial Tesla stock shock occurred after Tesla announced fewer-than-expected vehicle deliveries in Q2
• A temporary shutdown at the company’s new Giga Berlin factory also played into stock prices

Tesla stock took a sudden dive early Tuesday before recovering later in the session. The world’s largest EV maker saw shares plunge as low as $648.50 in premarket trading, though its fortunes shifted by EOD. Ultimately, shares closed up around 2.55% for the day at $699.20 apiece.

Unfortunately, one good blip on the stock chart hasn’t undone Tesla’s abysmal year, as shares remain down nearly 42% since January. And if Tuesday’s news – and a few analyst predictions – are any clue, TSLA may not have bottomed out yet.

The weakness in the numbers

The catalyst for Tesla’s Tuesday woes appears to be its not-so-celebrated holiday announcement.

While everyone was out buying hot dogs and fireworks, Tesla quietly released its Q2 vehicle delivery numbers. The report shows that over the last quarter, Tesla produced over 258,000 vehicles and delivered over 254,000.

That’s nearly 18% fewer than last quarter’s 310,000 vehicles delivered and slightly below the 257,000-unit consensus estimate. (Though it’s still a 50,000-unit increase over the year ago quarter’s delivery numbers.)

While these numbers are indeed disappointing, they’re not entirely shocking. After all, Tesla hasn’t been immune to the damages wrought by inflation, supply chain woes or the factory shutdowns rocking China. And, despite low deliveries, June 2022 still marks Tesla’s highest production month ever.

Shutdowns and supply chain woes

One of Tesla’s primary hurdles for the quarter was its Shanghai factory, which produces the bulk of its electric motors used in its new Berlin factory.

Thanks to spiking Covid-19 infections in China, Shanghai spent much of the quarter in varying states of lockdown. As a result, Tesla’s Shanghai output plunged dramatically. Limited capacity hampered the automaker’s downstream ecosystems, leading to parts shortages, snarled supply lines and stunted production efforts.

But Shanghai wasn’t the only problem Tesla faced last quarter.

The company grappled with other production shortages and inflation pressures in its newer Texas and German factories, too. And cost-of-living squeezes – which have prompted Tesla to start laying off some 10% of white-collar staff – continue to impact demand, profits and output.

Meanwhile, Russia’s invasion into Ukraine continues to exacerbate all kinds of supply chain issues and raise energy and production costs.

Upcoming changes

Delivery woes aside, Tesla also recently announced that it would temporarily shutter production at its Berlin factory. The factor, which currently produces around 1,000 vehicles a week, will be restructured to allow for onsite electric motor manufacturing. The company also plans to install a third shift.

Ultimately, Tesla hopes the new changes will allow it to revamp production and increase long-term production capacity. At the same time, it will ease pressure off the Shanghai factory and ensure a steady supply of necessary components.

Mixed opinions from analysts

Following both reports, Wall Street investment banks posted mixed price targets for TSLA stock.

For instance, JPMorgan analysts slashed their price target by $10, lowering expectations from $395 to $385. Analysts also cut Q2 and full-year 2022 earnings estimates and recommended that investors reduce their Tesla holdings.

Notably, JPMorgan has long held a bearish view on Tesla, often setting the lowest price target for the automaker compared to other major investment banks. Analysts from Citigroup, Bernstein and BNP Paribas also set or reiterated “sell” recommendations for Tesla on this recent news.

For each of these banks, a combination of weaker deliveries, ongoing supply chain concerns and considerable stock weakness inform their positions. But Tesla has several fans in the crowd, too.

For example, Deutsche Bank sees Tesla rallying above $1,100 by year’s end on expectations that volumes will rebound in the next six months. Deutsche Bank analyst Emmanuel Rosner even commended Tesla’s Q2 delivery numbers as “respectable” given various production headwinds.

Meanwhile, Oppenheimer holds steady on its bullish rating. And Wedbush analyst David Ives believes Tesla is set to “outperform” with a $1,000 price target by year’s end.

What to expect from Tesla this year

Despite some optimism from analysts, many still believe that Tesla’s bottom line could be maimed by production and execution concerns – particularly in relation to the company’s new Texas and Berlin factories.

Thus far, CEO Elon Musk seems to agree.

Mr. Musk recently dubbed both new factories “gigantic money furnaces.” In May, he noted that they’re losing billions of dollars due to “ton[s] of expense[s] and hardly any output” in the process of making them functional. Though the company never specified any specific losses, these implications don’t bode well for future earnings reports.

Aside from these costs, investors can expect Tesla’s materials costs to weigh on its balance sheet, too.

Like everyone else, Tesla is buckling under the weight of inflation this year – specifically, steep price hikes in battery metals. While Tesla has raised vehicle prices nearly $10,000 across the board to compensate, those increases only apply to new orders, not existing reservations.

As such, it’s possible that Tesla will be batter(i)ed from both ends as it’s forced to fill reservations below current profit margin models.

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