Tesla Q2 Deliveries Up; Is 10% Stock Rise Justified?

Tesla’s Q2 2024 delivery figures have surpassed forecasts, with 443,956 vehicles sold. This represents a 5% decrease from the same quarter last year but is a notable 15% increase compared to Q1 2024 deliveries. Following this news, Tesla’s stock saw a 10% rise in Tuesday’s trading. However, there are concerns about whether this rally is warranted.

Several factors are impacting demand for Tesla vehicles. High interest rates are increasing the cost of vehicle financing, and the effects of Tesla’s aggressive price cuts from the past year are starting to wear off. Additionally, competition is intensifying, especially in markets like China, where local manufacturers are offering compelling electric vehicles at competitive prices.

Tesla has been dealing with a growing inventory of unsold vehicles in recent quarters. In Q2, the company produced 410,831 vehicles, which is approximately 7.5% less than the number delivered. This is a contrast to Q1, when Tesla produced 433,000 vehicles but sold only around 386,810 units, leading to a buildup of about 47,000 vehicles in inventory. Previous reports and satellite images have shown unsold Teslas accumulating in parking lots across Texas, Australia, and Germany. Additionally, Tesla’s global vehicle inventory, measured in days of supply, increased from 15 days in Q1 2023 to 28 days in Q1 2024. However, this metric is expected to decrease in Q2.

We will be closely monitoring Tesla’s margins for the quarter. In Q1 2024, the average price of Tesla vehicles dropped to under $45,000, down from about $47,000 in the same quarter last year. Gross margins also fell to 17.4%, a decrease of approximately 200 basis points from the previous year. The situation might remain challenging in Q2, as Tesla has reduced prices by around $2,000 on three models, including the top-selling Model Y and the luxury Models X and S.

Tesla’s stock has experienced minimal growth, hovering around $230 compared to $235 in early January 2021. In contrast, the S&P 500 has increased by approximately 45% over this period. Amphenol Corporation, a company that supplies electronic connectors for the auto industry, has seen its stock nearly double in the same timeframe. This company is part of the Trefis High Quality Portfolio, which has consistently outperformed the S&P 500. The HQ Portfolio’s superior returns with lower risk highlight a less volatile performance compared to the benchmark index. Given the current macroeconomic environment with high interest rates, Tesla might face a similar scenario as in 2021 and potentially underperform the S&P 500 over the next 12 months, or it could experience significant growth.

Despite these challenges, we believe Tesla remains a key player in the transition to cleaner transportation and energy. The company’s robust supply chain, advanced battery and drivetrain technologies, and leadership in car software and self-driving technology position it well for long-term success. However, Tesla is likely to face pressure on deliveries and earnings this year, falling short of its ambitious multi-year target of 50% annual revenue growth. High interest rates, limited charging infrastructure in many regions, and decreasing resale values for EVs are likely to deter potential buyers. The early EV adopter market is also nearing saturation, which may further reduce demand. Our valuation places Tesla stock at $177 per share, nearly 20% below the current market price. For more details on Tesla’s valuation and how it stacks up against competitors, see our analysis on Tesla Valuation: Is TSLA Stock Expensive or Cheap? For insights into Tesla’s business model and revenue trends, check out our dashboard on Tesla Revenue: How Does TSLA Make Money?