Tesla's Q2 Deliveries Beat Draws Mixed Reaction From Analysts: Early Independence Day Celebration Or Giant Financial Incentive-Driven Transitory Boost?

Author: Shanthi Rexaline | July 03, 2024 04:04am

Tesla, Inc. (NASDAQ:TSLA) reported Tuesday above-consensus deliveries for the second quarter, sending its stock up by over 10% to its highest level in nearly six months. Analysts and fund managers weighed in on the report to decipher what led to the outperformance and its sustainability.

Munster Admits Mistake: “Mea culpa,” said Deepwater Asset Management Managing Partner Gene Munster in a post. Despite the nearly 5% year-over-year sales decline, the stock rallied notably because the rate of decline versus the prior year period improved from 9% in the March quarter to 5% in the June quarter, he said.

An improvement may have helped Tesla in demand as the sales beat came despite lighter discounting in the June quarter relative to the March and December quarters, the fund manager said.

Munster expects deliveries to return to growth in the September quarter, with the growth likely accelerating in the December quarter.

The tech analyst said the Aug. 8 robotaxi unveil will have a meaningful impact. The timing and pricing of the three new vehicles will continue to add noise over the next year, he said. He sees the company returning to mid-20% growth in the calendar year 2026.

Black Sees Low Financing Options: Strong deliveries increase the odds of Tesla extending favorable low-interest financing into the third quarter, said Future Fund’s Gary Black. The company will likely prefer this option over additional price cuts, he said.

The big positive, according to the fund manager, is the huge inventory drawdown, with about 33,000 units depleted in the U.S. alone.

See Also: How To Buy Tesla Stock

Is Worst Behind Tesla, Gerber Questions: Dissecting the results, Geber Kawasaki Wealth & Investment Management CEO Ross Gerber agreed with others in the role of low financing offers in the deliveries beat. The electric vehicle maker sold off inventory and cut production to boost cash flow in the quarter, he said. But he was skeptical about the margin impact of the action.

“But is the worst behind Tesla..,” he asked.

Referring to the second straight quarter of sales decline, Gerber said, the company seems to be capitulating to the idea of selling EVs. “It's all about FSD and taxis now,” he said. But the full self-driving software still has many issues and the Cybertruck doesn’t have the software yet, he added.

The fund manager said he liked the energy storage and charging businesses of Tesla.

Wells Fargo Unimpressed: Wells Fargo analyst Colin Langan, who has an Underweight rating for Tesla stock, said the second-quarter deliveries update did nothing to change his investment thesis. In an interview with CNBC, the bearish analyst said the outperformance was primarily due to Tesla’s “giant financial incentive.”

“This is the traditional auto story – Cut the price, drive volume,” he said. But the price cuts are not driving volume, he added. How much ever Tesla grows in the second half, estimates still have to come down, the analyst said.

Early Independence Day For Tesla, Says Analyst: Morgan Stanley’s Adam Jonas said the second-quarter deliveries report set off an early Independence Day celebration for Tesla. He singled out the deliveries beat, 33,000-unit inventory drawdown and record energy storage performance as positives.

The analyst, however, cautioned that matching 2023 deliveries could be hard for Tesla as it may have to grow sales by 6% in the second half.

The 33,000 reduction between production and deliveries offsets the first quarter’s inventory build-up and could add $1.5 billion to working capital this quarter, he said.

The show-stealer is the record storage number of 9.4 Gigawatt-hour for the quarter, which is nearly two times Morgan Stanley estimated, Jonas said. “As Gen AI acceleration spurs a multi-generational increase in energy demand, electricity generation and data center investment, we believe investors will begin to pay more attention to Tesla Energy,” he said. The analyst assigns a valuation of $38 per share for the business.

CANACCORD Ups Price Target: Ahead of Tesla’s July 23 earnings, CANACCORD Genuity analyst George Gianarikas upped his price target for Tesla shares from $222 to $254, a post from a Tesla influencer, citing the firm, said. The earnings report will likely bring new information on margin results and possible details on new vehicles and energy storage, the analyst said.

The most important information is the FSD take rates, Gianarikas said. “With the companies bet-the-firm focus on autonomy, the recent one-month free trial, and price reductions, we are very curious about recent FSD customer traction,” he said.

“We are autonomy uber-bulls, but believe in its current form Tesla would be best served with another FSD price reduction,” he added.

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