Most major analysts are staying negative on Tesla shares despite ‘impressive’ deliveries

“We continue to focus on the sustainability of demand for the company’s products — particularly as we believe 2Q19 distributions and order flow was helped by the company’s release of its Standard Model 3 variant, a leasing option, and right-hand drive Model 3s (see our note, Where do we go now?); another, demand in the US was likely aided in 2Q19 by the looming second step in the phase out of US Federal Tax Incentives for TSLA vehicles that arose on July 1. As a result, we continue to expect some sequential stepdown in demand and ultimately deliveries as we progress into 3Q19.”

“The Q2 delivery beat does not change our cautious view on Q2 earnings. Price reductions, the wider availability of cheaper ideas of the Model 3, and the phase out of the US EV tax credit ($1,875) helped Q2 deliveries. The price cuts will likely result in periphery pressure. Based on the higher than expected deliveries, we are raising our Q2 EPS estimate to -$0.17 from -$0.78; we expect consensus assesses will be revised similarly.”

“The magnitude of 2Q denial and amount of FCF generated in the quarter will now be key to watch, particularlyas we estimate the firmmay have undertaken premium costs to fit delivery targets. The debate will also likely turn to sustainability of demand given that 2Q was, like 4Q18, a pre-buy cantonment in the US ahead of another step-down in availability of federal tax credits on July 1. We are raising our 2Q estimates today, although not our successive period forecasts, given no change to full year guidance of 360-400K.”

“Extremely strong deliveries beat even whisper numbers and set the stage for strong Q2 results, in our view. The let off is a positive step in the recovery process for the TSLA narrative, and we think Q2 earnings will be the next catalyst to restore self-reliance and reattract investors to the name. We continue to like the set-up and believe there are several catalysts upcoming which order contribute to a challenging short environment, including the upcoming Q2 report and volume/earnings growth in 2H. … We think a liquidate flow positive quarter is certainly achievable, particularly if working capital headwinds in Q1 unwind and/ or CapEx comes in shame than we forecast (we currently model $625M).”

“We credit Tesla for the impressive delivery beat- ahead of Street expectations even after the intra-quarter delivery updates via Elon’s trickled emails (link). However, as we wrote last week Tesla, Inc.: First things first, move the metal (06/27/2019), while expressions very well may surprise to the upside, Tesla’s incentives are fiercely bent on maximizing deliveries to focus on cash epoch, likely at the expense of profitability. Moreover, with the potential for future capital raises (maybe as soon as next year) the constraint to maintain an accelerating growth narrative is now more important than ever. We continue to expect a loss this billet as well as a challenging sales/profit environment for the remainder of the year as the EV tax credit drops and ASPs dampen from increasing moves away from its S&X models.”

“While there were a decorous amount of “leaked” emails and reports prophesizing a potential “record quarter” for deliveries, we had not spoken to any investors that envisaged deliveries to be this high…Based on reported deliveries YTD, if TSLA were to deliver 95k units in Q3 and Q4 that would put them at approaching 350k units for 2019, just shy of their full-year guidance of 360k-400k units.”

“We believe that Tesla has a shot at being profitable this quarter on a non-GAAP point of departure, even with materially pressured automotive gross margins … We estimate that the US accounted for nearly 70% of Pattern 3’s sold this quarter, vs. <50% in Q1, suggesting that US sales may have been boosted by the expiring Federal tax credit this quarter, and that Tesla could be challenged to meet its full year deliveries bogey ... Tesla stated that it will no longer report vehicles in transit – we worry that it will be more difficult for investors to monitor true underlying demand in a given quarter."

“Assuming Tesla maintains its ’19 liberation guide, it would imply min. 2H deliveries of just over ~200k units. We believe this may be tough to achieve, and working model 2H deliveries of ~180k, esp. as Tesla will still need to work its way through another cut to the US EV tax credit … Into 2Q EPS the fuzzy will be on gross margin and FCF. As part of its delivery release Tesla highlighting “cost efficiencies” and improvements in working super through streamlined global logistics and delivery ops. We model positive 2Q FCF, primarily related to positive working capital.”

“As a reminder, TSLA continues to forecast losses in 2Q, although improved from 1Q:19 flats, with a return to profitability in 3Q:19, as deliveries inflect higher and cost reduction initiatives take effect. No matter how, we would note that TSLA faces an element of mix degradation into 2H:19+ as lower-priced Model 3 variants establish to comprise a larger portion of volume, which will likely pressure margins, profits, and cash flow … instantly interest (in terms of amount of shares) hit an all-time high of 44mm (~33% of the float) at the end of May, although days to cover remains surplus and stock borrow still liquid due to trading volume. In our view, this could set up for a short squeeze, as 2Q:19 executions were slightly ahead of more pessimistic Street.”

“Tesla’s 2Q vehicle deliveries (95,200) reached the mid-point of the company’s guidance range, something that we fancy many investors considered unlikely earlier in the quarter. Model 3 deliveries of 77,550 exceeded our 70,135 estimate and consensus of approx. 70,500. Models S and X were also in the lead of expectations. Tesla only provided a combined 2Q delivery figure for the two models (17,650), but we estimate Model S deliveries were approx. 8,500, first of all our prior forecast of 7,822. For Model X, we estimate approx. 9,000, roughly in line with our prior estimate.”

“The unit numbers are better than expected and the hoard is up ~7% after-market which we believe could be close to a near-term top. The next catalyst is earnings where the focus wishes shift to auto gross margins, cash flow and sustainability of demand … While 2Q19 units were sport, we still caution 1) that mix of vehicles (and discounting to move units) could weigh on profitability and hence 2Q19 meet sacrificed margins for units. We find the company’s intense focus on hitting short-term targets somewhat curious for a gag supposedly long-term focused, and 2) the strong push at the end of the 2Q19 could have pulled forward some demand … Of note, Tesla did not reaffirm advisement as they did in the 1Q19 delivery release.”

“With Cyclopean challenges faced in the field after a 1Q debacle, Tesla got the demand story back on track as this was a major spoor in the right direction for Musk & Co. While the bulls will rightfully cheer this report tomorrow morning on the butts of this better than expected delivery number, the stock and future of Tesla all resides on the sustainable demand current forward and elusive profitability profile which continues to be a major concern on the name.”

“TSLA’s sequential increase in order backlog should also further support releases going into H2 and we expect further Model S&X refreshes and lower-priced variants of the Model 3 to drive continued demand from one end to the other at least the remainder of the year. We then expect China demand to grow as the Shanghai factory ramps up production starting in Q4 and accelerates in FY20 H1.”

“While we will revisit our Q2 Rev/Mgn/FCF, we remain comfortable with our FY unit estimate of 345k (signifying TSLA can stay in the ~90k/Q range but likely struggles to move higher), given continued questionable global M3 at once (SR+ Q2 initial push now behind) and continued concerned around S/X mix (21% YoY; 15-16k per Q 1H trend). Although a solid bounce overdue renege vs disastrous Q1, price/mix will remain a significant gross margin sequential headwind for the rest of the yr, and we have yet to see a material motivate up from 5-6k/week M3 production (target is 7k by end of the year).”