A Tesla showroom in Los Angeles. Picture: AFP/MARK RALSTON
A Tesla showroom in Los Angeles. Picture: AFP/MARK RALSTON

San Francisco — Tesla reported a sequential gain in quarterly deliveries that seemed improbable weeks ago, sending its stock surging towards Wall Street’s most bullish price target.

The electric-vehicle (EV) maker handed over 90,650 cars to customers in the three months to end-June, exceeding analysts’ average estimate for about 83,000 in a Bloomberg News survey. Tesla delivered about 88,400 vehicles in the first quarter.

Tesla shares surged as much as 9.7% to $1,228 shortly after the open of regular trading, nearing the $1,250 target set on Thursday by Wedbush Securities. The stock is on the verge of tripling this year.

CEO Elon Musk overcame a roughly seven-week shutdown of Tesla’s California car plant by ramping up output at its new factory near Shanghai. Localising production in China is helping reach more customers in the world’s largest EV market by lowering prices. The period was also the first full quarter of deliveries for the Model Y crossover, which Musk has predicted will become Tesla’s top seller. 

What Bloomberg Intelligence Says:

Tesla’s Shanghai production has assumed the role of growth engine as the large addressable market of early adopters drives a surge in demand and makes China the company’s most important and voluminous market. Tesla pushed to keep its California factory open, and while demand is still coronavirus-affected, the US market is mature and no longer showing the growth that would move the company out of its niche. Kevin Tynan, global automotives analyst

Better product

While deliveries were down almost 5% from a year ago, that’s a strong showing relative to the declines other carmakers sustained due to the global pandemic that decimated vehicle demand in key markets.

“Tesla is winning because they have a product that is measurably better than both gas and electric competitors,” Gene Munster, a managing partner of venture capital firm Loup Ventures, wrote in a report. “It’s becoming more and more difficult to envision a scenario in which legacy automobile makers will find a way to meaningful expand the small share of EVs that they have today.”

The next big question for Musk is whether the deliveries were enough to earn a quarterly profit. He suggested to employees earlier this week that avoiding a loss was possible.

“Breaking even is looking super tight,” the CEO wrote to staff in an e-mail seen by Bloomberg. “Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”

Musk has sent many end-of-quarter e-mails to rally employees and signal to investors, but Tesla hasn’t always followed through on his optimism. The then-record 97,000 deliveries Tesla reported for the three months to end-September fell short of the 100,000 mark he floated in an e-mail to workers.

If Musk is on the mark this time, Tesla could qualify for inclusion in the S&P 500 index. To be eligible, the company needs to report positive quarterly earnings under generally accepted accounting principles (GAAP). Beyond sales of cars, Tesla can recognise revenue related to its automated driving system, and it also sells emissions credits to other automakers.

“With strong second-quarter volumes, GAAP profitability is now in focus and appears achievable, which could lead to inclusion in the S&P 500,” Ben Kallo, an analyst at Robert W Baird who rates Tesla the equivalent of a hold, wrote in a report.

Analysts, on average, project Tesla will report a loss of about $1.80 a share on a GAAP basis for the quarter, according to data compiled by Bloomberg. But higher-than-projected vehicle deliveries would make profitability a “less radical” idea, Dan Levy, a Credit Suisse analyst, wrote in a report on Monday.

Bloomberg

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