Tesla’s second-quarter production and delivery results are strong. Experts were furious to predict the all-electric car company’s capacity to meet forecasts. Last week, Reuters outlined why it believes Tesla is expected to end its nearly 2-year streak of record quarterly deliveries. Reuters was correct that Tesla did not set a new delivery record, but the company set a new monthly production record in June. Let’s take a look at Tesla’s work behind the scenes to continue its dominance of the EV market.
Primarily, the culprits for the weak delivery results include the extended shutdown in Shanghai related to COVID, the effects the shutdown had for a time on Tesla’s manufacturing and supply chain, and the slow nature of the new factories.
However, Tesla’s attempts to weather the pandemic and supply chain disruptions have so far fared much better than most automakers.
What did Musk mention about Tesla’s likely Q2 earnings?
Tesla CEO Elon Musk confirmed in April that Tesla’s total car production in the second quarter would be “roughly on par” with the first quarter, driven by the recovery in China. At the launch of the Gigafactory in Austin that month, Musk celebrated “a new phase of Tesla’s future.” Giga Austin is the site of current Model Y production and future Cybertruck production.
But Musk recently backtracked, saying in an email: “This was a very difficult quarter, mainly due to supply chain and manufacturing challenges in China. So we have to pull together hard to recover!”
Musk also joked that Tesla’s new factories in Texas and Berlin are “giant money furnaces,” losing billions of dollars as they struggle to ramp up production quickly. He acknowledged that the automaker’s supply chain problems aren’t over and keeping plants running remains an issue.
Wedbush analyst Dan Ives thinks the “line in the sand” for Tesla’s second-quarter deliveries is 250,000. Ives said anything below that would be a disappointment.
The Tesla-China factor
Tesla’s low-cost, profitable factory in Shanghai produced roughly half of the company’s total cars delivered last year, but Ives estimates the shutdown killed about 70,000 units in the quarter.
Tesla is not as troubled as it might initially appear. Indeed, as extracted from the Shanghai Securities Journal, Tesla has initiated a new program in China to incentivize car buyers to trade in their internal combustion engine (ICE) vehicles for a new electric car. For Tesla buyers who participate in the program, the new ICE exchange program will apply to Tesla vehicles that are ordered in China starting July 1, 2022 and will continue until the end of the year.
In order for buyers to take advantage of the program, they will need to complete and sign a trade-in agreement before taking delivery of their new Tesla. Customers taking advantage of the trade-in program will reportedly receive 14 days of price protection, a 14-day extended warranty period and a 90-day free trial of Tesla’s Enhanced Autopilot feature. Tesla will also visit the consumer’s home to evaluate the vehicle being sold.
Barron’s says June sales in China are critical for Tesla.
Tesla’s trials and positive results at the end of Q2
A variety of news stories showed how hard Tesla’s workforce worked to achieve a satisfactory result at the end of Q3. A series of tweets described how Tesla executives are trying to deliver cars to new Tesla buyers in extra time.
Great experience delivering new Teslas all over LA today! Los Angeles traffic isn’t that bad
— Franz von Holzhausen (@woodhaus2) June 30, 2022
I know many executives who have delivered cars over the years. It’s so much fun to show up at someone’s house with their new Tesla. But getting your new car delivered by Franz is very special of course 🙂 I mean, he designed the car someone just got 😂
— Martin Viecha (@MartinViecha) June 30, 2022
Another example of Tesla’s continued optimism comes from the Los Angeles Times, which featured an article in which owners flipped their Teslas for a quick profit. Even though Tesla raised the price of its Model Y by 5% to $65,990 in June, that didn’t stop the flippers.
Former Securities and Exchange Commission chief economist Larry Harris says Tesla’s turnaround is indicative of how some investors are adapting to an uncertain market to their advantage.
“When supply and demand don’t line up, you get these opportunities that smart people can take advantage of. We’ve seen this in all kinds of markets. When prices change significantly for scarce goods, some buyers realize that the item has more value to others than to themselves, and they will sell to people willing to pay more than they would pay, and profit from it.
Then there’s monthly vehicle registration data from S&P Global Mobility. Tesla was by far the leading brand when it came to electric vehicle market share in the United States. The company has 61% of the market as of April, with Ford second at 8% and Hyundai and Kia coming in at 6% each. The Tesla Model Y’s 14,152 registrations were 4 times more than the Ford Mustang Mach-E’s 3,287 in April.
Tesla has “a halo around the brand that is extraordinary and unique,” said Tom Libby, an analyst at S&P Global Mobility.
Ives argued that “while the softer macro will clearly impact demand around the edges in the coming quarters,” Tesla’s attempts at sufficient demand capacity to reach ~2 million units globally in 2023 is likely with production capacity that may exceed this number when factoring in Austin/Berlin to normalized China.
It was also interesting to see that Giga Berlin announced a new 3rd shift for production. Workers currently register for shifts at the Tesla Gigafactory Berlin at 6:30 a.m. or 2:30 p.m. A new third shift will begin by July 4. This means that the factory will operate 24 hours a day.
Tesla’s factory in Germany currently employs about 5,000 people, and the company plans to continue hiring hundreds more every month. The employment agency in Frankfurt (Oder) opened an office in Grünheide when the Tesla factory opened and found jobs at Giga Berlin for more than 600 job seekers. According to German Tesla chronicler Moss, Tesla’s goal is to have 12,000 workers at Giga Berlin by the end of 2022.
Big milestone 🚗⚡♥️
— Martin Viecha (@MartinViecha) June 18, 2022
Final thoughts
Gene Munster, managing partner at venture capital firm Loup Ventures, was cautious about the rest of 2022, saying the third quarter would be tough for Tesla and other tech firms, citing the risk of a recession.
Investment analyst site Forex predicts that Tesla will quickly recover from the severe slump seen in the second quarter; some of that expectation is fueled by the expectation of a recovery in shipments in the second half, driven by hopes that new factories in Berlin and Texas will contribute to growth going forward.
Tesla shares have fallen 37% since the start of April, potentially hit by Musk’s Twitter deal and China’s lockdown, as well as broader economic and stock concerns. Tesla shares were down slightly at midday Friday at $671.20 (-$2.22 or 0.33%).
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