Tesla Inc stock rallied after the company reported better than expected earnings and allayed fears of a slowdown.
Yesterday, during its second quarter earnings, the electric car maker Tesla Inc (NASDAQ:TSLA) tried to put to rest all fears of a slowdown around its existing luxury cars, Model X and Model S. For a while now, investors and analysts have been expressing fear about a slowdown in demand especially of the luxury sedan Model S. Sales of Tesla's Model S luxury sedan appear to have peaked in 2015 Q4. The company had delivered over 17k Model S sedans in that quarter. Since then, Model S deliveries have trended lower. In the most recent quarter, Tesla delivered 12,000 Model S sedans, a far cry from its peak. There is also concern that Model X sales are starting to stagnate.
Investors were worried about the slowdown in Model S deliveries.
Fears of a slowdown in the deliveries of existing models were one of the main reasons behind the recent downgrades Tesla stock had received. Goldman Sachs analyst David Tamberrino had reiterated a sell rating on Tesla stock, slashing the target price to $180 from $190, on the fears of peak demand. "We believe the excess production above deliveries, the discontinued 'order rate' metrics, and the company's 2H17 guidance (Model S and Model X deliveries to likely exceed) in combination with the past four quarters of delivery results point to a plateauing of demand for its current products," Tamberrino and his colleagues had written in a note to clients. He had slashed the growth rate between 2018-2021 from 13% to 5%. The second quarter delivery miss had accentuated the fear of a slowdown. And according to a report by InsideEvs, Tesla's deliveries in the U.S actually fell 5% y/y to a total of 9,740 in the second quarter.
Tesla Inc says demand picking up.
However, in the letter to shareholders, the company said that it expects the Model S and Model X demand to pick up. In fact, according to the company, the demand for its earlier models has started showing improvement in Q2 itself. And in July, weekly net order rate for Model S and Model X was about 15% higher than Q2 average weekly order rate. The demand for the high models further got a boost after the Model 3 handover event last Friday. However, as the company has warned, it is "too early to draw strong conclusions" from the demand trend after the handover event. There were also fears of Model 3 cannibalizing Model S sales. Some customers were expecting Model 3 to be a better version of Model S, a misconception which Tesla and its CEO, Elon Musk have been trying to clear for more than a few months. However, the recent commentary from the company should calm much of these fears.
Tesla stock rallies on better than expected results.
Tesla stock had rallied in after hours trading after the company reported its second quarter earnings. Tesla earnings were better than expected on several counts. The company reported a revenue of $2.79 billion, up 120% YoY and higher than analysts estimate of $2.51 billion. The non-GAAP loss came in narrower than expected. The company reported an adjusted loss per share of -$1.33 against Wall Street's expectations of an adjusted-loss per share of -$1.82. The company also burned lesser cash than many had expected it to. Though free cash flow burn of $1.16 billion was still huge and double the amount of first quarter.
Tesla was also upbeat about the demand and production of Model 3. The company said that since the handover event last week, Tesla is receiving on an average over 1,800 net Model 3 reservations per day, though it is still early to conclude anything from demand trend in such short time period. The company was also confident about its ability to hit 10000 units per week production of Model 3 by the end of next year. During the conference call, Elon Musk said that "What people should absolutely have zero concern about, zero, is that Tesla will achieve a 10,000 unit production week by the end of next year". Given the positive result, Tesla stock is up around 7% in pre-market trade. Tesla stock is likely to face resistance from the 50-day moving average around $344 level.
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