It’s another big week for Tesla (NASDAQ:TSLA) and its investors. The company reported a record 95,200 second-quarter vehicle delivery numbers on Tuesday.
TSLA stock has long been one of the most unpredictable stocks on the market. I predicted the initial market reaction numbers would be positive, even if they hadn’t been as good as they ended up being.
However, longer-term Tesla investors should take the Q2 numbers with a grain of salt, ignore the knee-jerk stock reaction and focus on the company’s fundamentals.
The Numbers
In early May, Tesla reaffirmed its guidance for second-quarter vehicle deliveries of between 90,000 and 100,000 units.
Later in the month, a leaked email from CEO Elon Musk suggested Tesla was “on track to set an all-time record” for quarterly deliveries in the second quarter. To set a new record, Tesla had to beat 90,700 deliveries it reported in the fourth quarter of 2018.
In reality, Wall Street’s expectations for Tesla were much lower. The consensus analyst delivery estimate had dropped to 84,000, according to Nomura Instinet.
Wedbush’s Daniel Ives is one of the analysts who had recently dropped his expectations for Tesla, cutting his Q2 delivery estimate from 88,000 to 84,000.
On Tuesday, Ives said Tesla’s second quarter was a positive step for the company.
“Taking a step back, with Musk and Tesla’s back against the wall and many doomsday predictors abound, the company came through swinging with a strong Q2 delivery unit number that will help restore credibility to the story in the near-term as Musk talked the talk, but finally walked the walk this quarter,” Ives said.
Ignore the Tesla Stock Reaction
TSLA stock initially traded higher by about 7% on Wednesday morning following the report. In my opinion, as long as Tesla had reported second-quarter deliveries of at least 85,000, TSLA stock would have reacted positively in the short-term. Expectations for Tesla are so low these days and its short position is so large that a relief rally seemed inevitable. All Tesla needed to do is not completely blow it with less than 83,000 deliveries, and the market would likely have rewarded the stock.
At this point, I think it’s good for investors to keep some perspective on the situation. The midpoint of Tesla’s guidance was 95,000 vehicle deliveries. The company reported almost exactly 95,000 vehicle deliveries. Would most stocks on Wall Street rally around 7% simply by meeting guidance?
Tesla reported 83,500 vehicle deliveries in Q3 of 2018. It reported 90,700 deliveries in Q4 and 63,000 deliveries in Q1 of 2019. In other words, Tesla has grown its deliveries by an average of about 4.4% quarter-over-quarter for the past three quarters.
“While the bulls will rightfully cheer this report tomorrow morning on the heels of this better-than-expected delivery number, the stock and future of Tesla all resides on the sustainable demand going forward and elusive profitability profile, which continues to be a major concern on the name,” Ives said.
For Tesla to justify its $42 billion market cap and massive losses, it has got to sell more than 332,000 vehicles per year. Ford (NYSE:F) has a $40 billion market cap, and it sold about 6 million vehicles last year.
Reading Between the Lines
Record deliveries are not something to get excited about when it comes to a growth story like TSLA stock. If Netflix (NASDAQ:NFLX) reported a “record number of subscribers” this quarter, traders would say, ”No kidding. How many?”
Tesla needs to break its own deliveries and revenue records each quarter by a wide margin. That’s what a growth stock does.
Tesla expanded the Model 3 to Europe earlier this year. TSLA stock bulls are hoping Europe will be the company’s next source of demand. The company blamed Europe for its lackluster first quarter.
This week, the head of Tesla Europe left the company after a little more than a year on the job. The latest departure comes after Tesla’s head of production left last week. It’s all a part of a much larger parade of executive departures in 2019.
Regardless of TSLA meeting its delivery guidance, it seems things are not necessarily going smoothly in Europe.
Bottom Line for TSLA Stock
Tesla has missed guidance and disappointed the market so many times in the past several years that a positive initial market reaction to Q2 deliveries is understandable. Expectations could not be lower. However, longer-term investors should look beyond the initial spike and consider the number in context with the bigger picture of Tesla’s growth story.
TSLA stock price has spiked plenty of times in the past five years on promises from the company, short-term achievements and Elon Musk speeches. But the company is nowhere near where long-term investors thought it would be at this point.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
