Tesla’s Q2 Deliveries Surprised, But Was Stock’s 10% Rally Justified?

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Tesla (NASDAQ:TSLA) posted a better-than-expected set of delivery figures for Q2 2024, selling 443,956 vehicles for the quarter.  The number was about 5% lower compared to last year’s quarter although it was 15% ahead of the company’s Q1 2024 deliveries.  Tesla stock gained about 10% in Tuesday’s trading following the news. Multiple factors have been dampening demand for Tesla vehicles. High interest rates are making it more expensive for customers to fund vehicle purchases. The effects of the aggressive price cuts Tesla has made over the past year are also likely easing. Competition, too, is mounting, particularly in markets like China, where there are a slew of compelling EVs produced by local manufacturers at attractive price points.

Tesla has been grappling with a rising inventory of vehicles in recent quarters, and it appears to be taking steps to reduce this surplus. Over Q2, Tesla produced 410,831 vehicles, about 7.5% less than the total deliveries for the month. This contrasts with Q1 when the company produced 433,000 vehicles but sold only about 386,810 units –  an addition of around 47,000 vehicles to inventory. Reports and satellite images previously showed unsold Teslas accumulating in parking lots across Texas, Australia, and Germany over Q1. Moreover, Tesla’s global vehicle inventory, measured in days of supply, rose from 15 days in Q1 2023 to 28 days in Q1 2024. However, it’s likely that the metric will decline in Q2.

We will be closely watching Tesla’s margins for the quarter. In Q1 2024, the average price of Tesla vehicles dropped to under $45,000, down from about $47,000 in the same quarter last year, and gross margins came in at 17.4%, down by about 200 basis points compared to the same quarter last year. Things could remain tough in Q2 as well, as Tesla reduced about $2,000 off the prices of three of its models including the Model Y, which is the top-selling electric vehicle and also of the luxury Models X and S vehicles.

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TSLA stock has seen little change, moving slightly from levels of $235 in early January 2021 to around $230 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. In comparison, Amphenol Corporation stock (NYSE:APH), a company that makes electronic connectors, has been a big beneficiary of the electrification of the auto industry, with its stock rising by almost 2x over the same period. Turns out, APH is part of the 30-stock Trefis High Quality (HQ) Portfolio, which has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the uncertain macroeconomic environment with elevated interest rates, could Tesla face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump?

We remain of the view that Tesla will be a big beneficiary of the long-term transition to cleaner transportation and energy generation, given its well-oiled supply chain, superior battery, and drive-train technologies, and its lead with car software and self-driving technology. That said, the company is likely to see its deliveries and earnings face pressure this year, falling well below the company’s multi-year target of 50% annual growth in revenues. High interest rates, a lack of extensive charging networks in many countries, and falling resale values for EVs are likely discouraging potential buyers. The market of early EV adopters is also likely saturating, leading to lower demand.  We value Tesla stock at $177 per share, which is almost 20% below the current market price. See our analysis on Tesla ValuationIs 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 RevenueHow Does TSLA Make Money?

Returns Jul 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 TSLA Return 17% -7% 1523%
 S&P 500 Return 1% 15% 145%
 Trefis Reinforced Value Portfolio 0% 7% 657%

[1] Returns as of 7/3/2024
[2] Cumulative total returns since the end of 2016

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