Tesla's Panicky Q2: Everything Must Go!
Prices have been slashed and slashed again, on top of expensive incentives like free charging, cheap leases, & juicy subsidies. But Tesla has been unable to ease elevated inventory in key markets.
Tesla TSLA 0.00%↑ continues to scramble to dump inventory as the final hours slip away for its troubled second quarter.
This has included several additional rounds of severe price cuts in every major market plus increased expensive incentives like free charging, cheap lease terms, and insurance subsidies.
The strategy will be costly to revenue quality and profit since Tesla prices already were down 20-30% y/y by mid-quarter (see Tesla's Still Bloated Inventory Signals June Sales May Disappoint, Along With Q2 Market Estimates).
Moreover Tesla’s pricing for new and used models has been dropping sharply for
months while industry peers still log healthy price increases. This red flag signals Tesla’s market share continues to shrink even faster—share not likely to be recovered.
Tesla has little choice, as I long have warned, since it really has only one strongly competitive model left, Model Y, out of its paltry, aging fleet of four.
It's no wonder then, as I noted even earlier in the quarter. “demand momentum has not been restored—no matter how low Tesla’s prices have fallen. But since Tesla has no Plan B, all it can do it keep cutting prices” (see Tesla's Q2 Is Already In Trouble).
Tesla investors remain confident, however, and the stock is up 24% since the end of the first quarter to $257.50 (though still well below $315 hit last fall).
Already ambitious market estimates have climbed as well, with the consensus for Q2 deliveries now indicating 448,000 (up 76% y/y).
It is true that Tesla’s fire sales have moved more metal. Elevated inventory has reportedly eased in China. So, I now estimate June deliveries near 68,000. That’s still down 12% y/y but enough to push the quarter to 153,500 (up 72%).
This also indicates June at just 45% of quarter sales, trailing historical trends that Tesla typically generates 50-60% of total quarterly sales in the last month—as I projected (see Tesla's Still Bloated Inventory Signals June Sales May Disappoint, Along With Q2 Market Estimates.)
Meanwhile, China’s good news does not seem to have extended to Tesla sales in the US and Europe, where inventory remains meaningfully higher versus the first quarter.
It’s possible inventory has remained higher because Tesla continued to pound out higher production despite stalling sales trends which forced Tesla into months of crushing price price reductions—but why in the world would it do that?
So, I have adjusted my Q2 delivery estimates to include stronger China results that, I suspect, also will contribute a bigger slice at roughly 35% of the total Q2 deliveries—at the expense of Europe and especially the US.
If so, this indicates consolidated Q2 deliveries at 437,000 (up 72% y/y), up versus my previous estimate of 426,202 (up 67% y/y).
Assuming higher deliveries, offset by lower average pricing down 18-20%, I now estimate second quarter consolidated revenue at $22.4 billion (up 32%), reported EBITDA at $3.74 billion (down 1%; 16.7% margin) and net income at $2.1 billion (down 6%).
We’ll see. Tesla is expected to announce Q2 deliveries this Sunday morning.
Stay tuned.
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