Tesla Q2 Earnings Preview: Eyes Are On China, Volume Growth, Margin Expansion & Delivery Guidance

Tesla is set to report earnings after the bell today amidst a number of ongoing Tesla news items and social scandals surrounding Elon Musk, which include but are not limited to:

Musk’s $40+ billion Twitter purchase in the midst of being litigated in a Delaware Chancery Court, the results of which may have an impact on Musk’s holdings of Tesla

Tesla’s two new factories coming online despite the company laying off workers from its San Mateo office and cuts of as much as 3.5% of its global workforce this past quarter

Tesla’s head of AI and Autopilot resigning from the company just days ago

A broad, ongoing NHTSA investigation into Tesla’s Autopilot and Full Self Driving features

Elon Musk’s 76 year old father running around claiming he’s been put on Earth to inseminate as many “high class” women as possible 

Oh, and of course, the earnings themselves…

Wall Street expectations are calling for $1.83 a share for the second quarter on revenue of $16.88 billion. The company’s deliveries for Q2 missed expectations and there has been widespread concern about the company’s business in China, which has been hampered by Covid lockdowns and supply chain issues. 

Analyst Expectations

In a mid-day writeup out Wednesday, Bloomberg quotes Deutsche Bank in saying that investors have a “compelling opportunity to accumulate the stock” at these levels, after the stock has fallen 38% this past year. 

Deutsche continued: “Volume growth and margin expansion could be meaningful.”

Alexander Potter, an analyst at Piper Sandler, wrote this week that wait times for the company’s new Model Y vehicle, despite new factories coming online, have not come down: “So far, no such inflection has materialized. We will be watching this closely in the coming months, since Berlin and Austin are major wildcards when it comes to predicting Tesla’s second-half production (and margins).”

“Tesla will soon report a terrible Q2 (even before accounting for a roughly $500 million Bitcoin write-down), with deliveries down substantially from Q1, which itself showed no growth over Q4,” wrote short seller Mark Spiegel days ago in his Q2 letter.

“However, Q2’s decrease was due to a monthlong COVID-related closing of Tesla’s Shanghai factory, and thus it might be a while yet before we can get a “clean” demand picture for the company,” he continued. 

“Regardless, Tesla has objectively lost its ‘product edge,’ with many competing cars now offering comparable or better real-world range, better interiors, similar or faster charging speeds and much better quality. (Tesla ranks second-to-last in Consumer Reports’ reliability survey while British consumer organization Which? found it to be one of the least reliable cars in existence.)”

Morgan Stanley was out weeks ago bracing for the Q2 plunge, lowering price targets on the name and saying it expected lower Q2 volumes. “We mark to market our 2Q forecasts for lower volume (latest data, China) with most of the shortfall made up for in 2H volume and higher pricing,” analyst Adam Jonas wrote last month. He also predicted the company would have a good June: 

Despite the cuts, Jonas is still encouraging “buying the dip” into what will likely be a weak Q2 print. He said that “with TSLA 2Q sales estimated to be around 100k units through May (EV-Volumes.com), we believe TSLA will flex its manufacturing prowess, aided by accelerated ramp of Austin and Berlin, and deliver ~170-175k units in June.”

Also in June we had highlighted a Wedbush note from Dan Ives said Tesla’s shutdown in China was an “epic disaster” for its June quarter. Ives said he expects to see “modest delivery softness” for the quarter. 

Ives also said he is expecting a “slower growth trajectory” in China into the second half of the year and called the headwinds out of Asia “hard to ignore”. He also commented that the ongoing Twitter drama “may be a distraction” for Musk at a time when his attention should be focused on dealing with Tesla’s issues. 

Recall, we noted weeks ago that “no vehicles were sold in Shanghai last month [April]” as a result of the lockdown, according to an auto-seller association in the city. 

Production

Production and production guidance will also be in focus. Reminder, in an interview released in June, Elon Musk called Tesla’s new German and Texas factories “gigantic money furnaces losing billions of dollars.”

As a reminder, in late June it was reported that the company’s Texas Gigafactory was outputting 5,000 vehicles per week.

The factory also added production of the Model Y Long Range on top of the Standard Range version, the report says. The automaker is staying mum on the details of its production coming from its new factory, it continues.

The Texas Gigafactory has been one of the the company’s most important recent investments. The company is finally, after starting production of the Model Y back in 2021, starting to gradually ramp up deliveries of vehicles built in its Texas factory. 

The company’s goal is reportedly to produce 10,000 vehicles per week by the end of the year. 

electrek’s sources told them that “Tesla has managed to ramp up production since adding a new version of the Model Y, Model Y Long Range, and it now produces several thousand vehicles per week” at the factory. 

They were also told Tesla was capable of producing at least 2,000 Model Ys per week from the factory. Some buyers taking delivery of the Model Y Long Range from the factory are being told that their models have the old 2170 cell batteries, and not the company’s new ones. 

Drone footage appears to show that Tesla is getting “hundreds of cars out every day,” the report concluded. 

Deliveries

On the deliveries front, all eyes are on guidance going forward since the company just reported its Q2 days ago. On July 2 when it reported, it said that it delivered just 254,695 vehicles for Q2 2022.

The company stated: “In the second quarter, we produced over 258,000 vehicles and delivered over 254,000 vehicles, despite ongoing supply chain challenges and factory shutdowns beyond our control.”

Despite this, the company’s June month was the highest vehicle production month in Tesla’s history, according to Bloomberg. The company’s deliveries represent a 26.7% gain in deliveries from last year and a drop from last quarter’s record of 310,048. 

The drop marked the lowest delivery quarter since Q3 2021 for Model 3/Y vehicles. 

The company was originally expected to deliver 295,000 vehicles, but analysts had reduced their estimates to around 256,000 prior to the numbers coming out. Tesla delivered 238,533 Model 3 and Model Ys for the quarter, and 16,162 Model S and Model X vehicles. As you can see, the company’s phase out of the Model S and Model X looks to have continued, despite a slight uptick: