How Will Falling Q2 Deliveries Impact Tesla’s Earnings?

Tesla (NASDAQ:TSLA) is expected to publish its Q2 2022 earnings on July 20. We expect Tesla’s revenues to come in at roughly $16.3 billion, rising by about 35% versus last year, although this would mark a decline of about 13% sequentially. We expect earnings to come in at about $1.95 per share, down from $3.22 in Q1, although the number is likely to rise from $1.45 per share during the same quarter last year. See our interactive dashboard analysis on  Tesla Earnings Preview for more details on how Tesla’s revenues and earnings are likely to trend for the quarter. So what are some of the trends that are likely to drive Tesla results? 

Tesla has already provided delivery numbers for Q2, with total deliveries down 18% sequentially to 254,695, although it grew by about 27% year-over-year. The decline is largely due to the rise in Covid-19 cases in China, which led to lockdowns and restrictions. Tesla had to suspend production at its Shanghai factory, which accounts for about 40% of its production capacity, multiple times throughout the quarter. However, Tesla’s recent price increases and a growing mix of its luxury Model S and X vehicle deliveries (up 10% sequentially) are likely to reduce the impact on revenue to an extent. While Tesla’s margins have been expanding quite steadily in recent quarters, it’s likely that they could see some pressure due to the lower production in Shanghai and also by the company’s investments in ramping up production at its new plants in Germany and Texas.

Although Tesla stock could see some volatility post its Q2 results, we believe the stock remains undervalued at current levels. We value Tesla stock at about $1,100 per share, which is almost 50% ahead of the current market price. Some factors supporting our price estimate include Tesla’s solid recent execution and strong demand for its EVs. For perspective, Tesla’s  Model Y long range, one of its most popular models, is back-ordered until at least January 2023. Tesla’s production is also likely to ramp up considerably in the coming quarters, potentially compensating for the recent shortfall. In its Q2 production press release, the company indicated that June was the best production month in its history. Things are only likely to get better as the company scales up production at its new facilities. Moreover, Tesla’s margins are among the highest in the auto industry and this should enable the company to be solidly profitable as sales rise. See our analysis on Tesla Valuation: Is TSLA Stock Expensive Or Cheap? for more details on Tesla’s valuation and how it compares with peers. For more information on Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How TSLA Makes Money.

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[1] Month-to-date and year-to-date as of 7/8/2022
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