What To Expect As Tesla Reports Q2 Results

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Tesla Motors (NASDAQ: TSLA) is expected to publish its Q2 2017 results on August 2, reporting on a quarter that saw its automotive deliveries decline sequentially, amid some constraints in its high-capacity battery manufacturing. Here’s a brief look at what to expect when the company publishes earnings Wednesday.

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Vehicle Deliveries Decline Sequentially

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Tesla indicated that it had delivered about 22k vehicles over Q2’17, marking a 53% year-over-year increase.  About 10k of these vehicles were Model S, with Model X accounting for the rest. This puts Tesla’s deliveries for the first half of the year at approximately 47k, which is at the lower end of the guidance it provided during its first quarter conference call. The company has attributed the sequential decline in deliveries to a production shortfall of its 100 kWh battery packs, indicating that production averaged about 40% below demand. That said, it’s worthwhile to note that Tesla’s combined deliveries of Model S and Model X have remained at roughly the same level over the last four quarters. Tesla already holds about 30% market share in the large luxury sedan segment, indicating that the market may be saturated. However, the company could make further gains as its costs decline with falling battery prices.

Tesla’s energy business is now operational, following its acquisition of Solar City. During the first quarter, the company deployed 150 MW of solar generation capacity and 60 Mega Watt hours of energy storage capacity. There is a possibility that the deployment of solar capacity could grow, driven by stronger demand as well as some positive developments on the net-metering front in certain states.

Auto Margins Could Contract

Tesla’s adjusted automotive gross margins stood at 27.8% during Q1, and the company has indicated that it could see a decline of about 250 basis points in Q2, due to the absence of a one-time benefit of Autopilot software revenue recognized during Q1 and some fluctuations in the product mix. That said, costs of production of the Model S and Model X vehicles could continue to decline, based on the execution of the company’s roadmap to improve manufacturing efficiencies. Tesla’s operating losses are still expected to remain sizable, as the company has been undertaking expenses to support the future sales of its vehicles and energy products, which are not tenable at its current levels of sales.

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