Tesla Q2: Solid Beat, At Any Cost
Tesla Q2: Solid Beat, At Any Cost
Q2 deliveries solidly higher vs expectations, thanks to 11th hour fire sales on top of fire sales to move sluggish inventory. Margins & profits probably can't recover as more is already needed in Q3.
Tesla TSLA 0.00%↑ reported second quarter deliveries hit a record 466,915, up 8% versus the first quarter and up 87% y/y. Results were substantially higher versus market consensus at 448,000 (up 76% y/y) and my own more cautious estimate for 437,000 (up 72%) (see Tesla's Panicky Q2: Everything Must Go!)
Such a massive beat was surprising since Tesla’s inventory was remained elevated into the closing days of the quarter despite multiple rounds of severe price cuts plus expensive incentives like free charging, cheap lease offerings, and more (see Tesla's Panicky Q2: Everything Must Go! and Tesla's Still Bloated Inventory Signals June Sales May Disappoint, Along With Q2 Market Estimates).
Tesla’s prices are now down some 20-30% versus last year, with most models now also qualifying for the $7,500 US federal tax credit under the Inflation Reduction Act.
And yet, as we saw in the first quarter, inventory remained higher at quarter end versus previous quarters as production exceeded deliveries by nearly 14,000. The cumulative excess has grown every quarter to a highest ever 88,000 cars over the last four quarters, including nearly 75,000 Models 3 & Y.
As I warned in previous reports, growing excess inventory has changed the dynamics of Tesla’s historic sales trends when it typically delivered 50-60% of total quarterly sales in the last month, and often in the last days of the quarter.
Tesla has justified this strategy for years as keeping inventory scare in the first two months of the quarter because it needed to ship production to overseas markets. This generally delayed local market sales sufficiently for Tesla to claim it couldn’t make cars fast enough to meet “insane” demand, often by enough to help support its above-market pricing and luxury car branding.
Such claims became increasingly strained over the past year as Tesla's global production has begun to mature at higher levels as new and existing plants approach full capacity—higher levels than it’s now able to sell. This comes, as I projected, just as major competitors in every market have ramped up sales of appealing rival models.
The pressure culminated in the second quarter as I expected with June deliveries indicated at just 45% of the total for the three months. In China, for example, Tesla’s June sales are indicated at 70,748, near my estimate for 68,786. This was down 8% versus May and down 9% y/y.
This quarter also marked the first that Model Y actually led the decline with June sales down 15% versus May and down 11% y/y. This supports my concerns that sales of Model Y—Tesla’s only model still growing sales—may mature and potentially pass peak demand in the second half of this year.
By comparison, China industry NEV sales were already up 15% versus May up 13% y/y for June 1-25. The top seller again was BYD Company Ltd. which sold 251,685—up 5.3% versus May and up 88% y/y. This included 128,196 (up 84% y/y) BEV (fully electric) models which compete directly with Tesla.
Recall that BYD quickly surpassed Tesla last year as the largest EV seller in the world. BYD roughly doubled sales again in Q2 with 700,244 (up 98% y/y), including 352,163 (up 95% y/y) BEVs—trends which continue to gain momentum.
Tesla’s prospects seems considerably less rosy. Growing excess inventory at record levels and flagging June sales trends support my concerns that Tesla may struggle even to maintain sales at Q2 levels going forward. Indeed, Tesla already has cut prices again in Canada in recent days, with more likely to come in all markets.
In the meantime, Tesla will report full Q2 results on July 19th. Assuming reported deliveries, offset by weak pricing down potentially 15-20% y/y, I estimate revenue at $23.3 billion (up 24% y/y) with reported EBITDA (including energy credits, etc.) at $4.3 billion (down 15% y/y; 18.3% margin), and net income at $2.5 billion (down 24% y/y).
Stay tuned.
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