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Is Tesla (TSLA) Worth a Bet Now After Q2 Delivery Beat?
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Tesla (TSLA - Free Report) rallied more than 10% yesterday after releasing its vehicle production and delivery numbers for the second quarter. The electric vehicle (EV) giant delivered 443,956 cars (422,405 Model 3/Y and 21,551 other models) worldwide in the second quarter, beating analysts’ expectations of 439,000 as compiled by FactSet. The deliveries were down roughly 5% year over year but increased 15% from the first quarter of 2024. The company produced 410,831 vehicles (386,576 Model 3/Y and 24,255 Model S/X) in the three months ended June.
It's worth noting that the company’s deliveries outpaced production during the quarter, likely reducing inventory levels. Earlier this year, concerns about increasing inventory due to perceived lower demand had led to a significant drop in Tesla's share price. In fact, Tesla was the worst-performing S&P 500 stock of the first quarter of 2024, down nearly 30% during the period.
However, the stock seems to have regained its mojo, surging 13% in the second quarter and more than 30% over the past month.
Image Source: Zacks Investment Research
Now, that was an impressive comeback, but can Tesla continue the momentum? After a rough start to the year, is the worst behind the company? Should you buy the stock at the current levels or is it too late now? Let’s find out.
Why TSLA’s Long-Term Prospects Seem Bright
Last month, Tesla shareholders voted in favor of its visionary CEO Elon Musk’s hefty pay package. This signaled a renewed vote of confidence in his leadership and potentially motivated him to continue driving Tesla's ambitious projects, including advancements in artificial intelligence (AI)and autonomous driving technology.
With AI being the buzzword now, Tesla’s focus on it and autonomous driving is expected to be a game changer.Musk is urging investors to view Tesla primarily through the lens of AI and robotics rather than solely as an automotive company.
The introduction of Tesla’s humanoid robot project (Optimus), the release of its Full Self-Driving (FSD) Beta software (V12) early this year and plans to showcase its robotaxi or Cybercab in August signify promising advancements for the company. Musk is heavily investing in the company's Robotaxi plans. TSLA is holding a Robotaxi event on Aug 8, which is anticipated to be a bullish catalyst for the stock.
Another major driver for Tesla is its lucrative Energy Generation/Storage business. Tesla deployed 9.4 GWh of energy storage products in the second quarter of 2024, marking the highest quarterly deployment yet.Tesla anticipates that energy storage deployments will increase at least 75% in 2024 amid ongoing efforts to ramp up production at the Megapack factory to meet escalating demand.
And, of course, Tesla's recent deliveries have shown signs of a turnaround, marking a double-digit percentage increase on a sequential basis. In fact, the whole narrative of a cooling EV market might just have been a tad bit exaggerated, it seems.At least, that’s what we can infer now. Apart from Tesla, Rivian’s (RIVN - Free Report) EV deliveries also beat expectations. The California-based company delivered 13,790 vehicles in the second quarter, beating analysts’ estimates of 12,000 units. China-based EV maker NIO Inc. (NIO - Free Report) witnessed a 144% uptick in its vehicle deliveries on a year-over-year basis.
Coming back to Tesla, the EV behemoth’s updated Model 3 and forthcoming Model Y Refresh are expected to boost sales. With the automotive sector constantly seeking the latest advancements, Tesla aims to sustain sales growth in the coming quarters by revamping its two most popular models in 2024.
But Investors Should Be Mindful of Near-Term Woes
While autonomous driving and FSD software will be key to the company’s future success, investors should not ignore the challenges Tesla is currently battling.
The company is resorting to price cuts and incentives to spur sales. While that might have stimulated demand in the second quarter, it is also likely to cause margin compression.
Tesla has ignited an EV price for over a year. It has been offering discounts and incentives, including low-interest loans and more affordable leasing plans, in the United States, China and Europe, which are impacting its profit margins. Wells Fargo anticipates that Tesla's automotive gross margins, excluding environmental credits, will decline amid additional price cuts as the year progresses. Amid intense competition, the pricing pressure will only increase, squeezing its margins. The Zacks Consensus Estimate for 2024 EPS implies a year-over-year contraction of 21%.
The company's EV sales may not continue to be its primary growth driver for much longer. Tesla needs to develop other businesses and generate income from additional sources to support and complement its EV operations.
TSLA Not Trading Cheap Now
Well, Tesla does command a high valuation, given its innovative capabilities and high growth potential compared to traditional automakers. But still, we believe that its valuation is still a bit too stretched given its current challenges. Also, it needs to be seen if Tesla can deliver on its promises regarding a lower-priced model and advancements in self-driving technology. If it progresses well on that front, it could signal a significant revival for the company. If not, things would get really tough for this EV pioneer. TSLA shares currently trade at 6.98X forward earnings, way higher than the industry’s 1.52X.
Image Source: Zacks Investment Research
Wait for a Better Entry Point
If Musk and Tesla successfully execute their new self-driving and AI plans, investors could see the stock rise significantly in the next 6-12 months. Current shareholders should avoid taking profits now, as the stock is trading above its 50-day and 200-day moving averages, indicating a bullish trend. Holding onto the stock could yield substantial long-term returns.
However, for potential investors, it might be too early to buy in. Tesla's history of missing deadlines adds a layer of uncertainty. Investors should keep an eye on the upcoming results on Jul 23, as margins will be a key focus. Additionally, the highly anticipated Robotaxi event on Aug 8 will provide further insights into Tesla's progress in autonomous vehicles. It would be prudent to wait for updates on these factors before making an investment at current levels.
Image: Bigstock
Is Tesla (TSLA) Worth a Bet Now After Q2 Delivery Beat?
Tesla (TSLA - Free Report) rallied more than 10% yesterday after releasing its vehicle production and delivery numbers for the second quarter. The electric vehicle (EV) giant delivered 443,956 cars (422,405 Model 3/Y and 21,551 other models) worldwide in the second quarter, beating analysts’ expectations of 439,000 as compiled by FactSet. The deliveries were down roughly 5% year over year but increased 15% from the first quarter of 2024. The company produced 410,831 vehicles (386,576 Model 3/Y and 24,255 Model S/X) in the three months ended June.
It's worth noting that the company’s deliveries outpaced production during the quarter, likely reducing inventory levels. Earlier this year, concerns about increasing inventory due to perceived lower demand had led to a significant drop in Tesla's share price. In fact, Tesla was the worst-performing S&P 500 stock of the first quarter of 2024, down nearly 30% during the period.
However, the stock seems to have regained its mojo, surging 13% in the second quarter and more than 30% over the past month.
Now, that was an impressive comeback, but can Tesla continue the momentum? After a rough start to the year, is the worst behind the company? Should you buy the stock at the current levels or is it too late now? Let’s find out.
Why TSLA’s Long-Term Prospects Seem Bright
Last month, Tesla shareholders voted in favor of its visionary CEO Elon Musk’s hefty pay package. This signaled a renewed vote of confidence in his leadership and potentially motivated him to continue driving Tesla's ambitious projects, including advancements in artificial intelligence (AI) and autonomous driving technology.
With AI being the buzzword now, Tesla’s focus on it and autonomous driving is expected to be a game changer.Musk is urging investors to view Tesla primarily through the lens of AI and robotics rather than solely as an automotive company.
The introduction of Tesla’s humanoid robot project (Optimus), the release of its Full Self-Driving (FSD) Beta software (V12) early this year and plans to showcase its robotaxi or Cybercab in August signify promising advancements for the company. Musk is heavily investing in the company's Robotaxi plans. TSLA is holding a Robotaxi event on Aug 8, which is anticipated to be a bullish catalyst for the stock.
Another major driver for Tesla is its lucrative Energy Generation/Storage business. Tesla deployed 9.4 GWh of energy storage products in the second quarter of 2024, marking the highest quarterly deployment yet.Tesla anticipates that energy storage deployments will increase at least 75% in 2024 amid ongoing efforts to ramp up production at the Megapack factory to meet escalating demand.
And, of course, Tesla's recent deliveries have shown signs of a turnaround, marking a double-digit percentage increase on a sequential basis. In fact, the whole narrative of a cooling EV market might just have been a tad bit exaggerated, it seems.At least, that’s what we can infer now. Apart from Tesla, Rivian’s (RIVN - Free Report) EV deliveries also beat expectations. The California-based company delivered 13,790 vehicles in the second quarter, beating analysts’ estimates of 12,000 units. China-based EV maker NIO Inc. (NIO - Free Report) witnessed a 144% uptick in its vehicle deliveries on a year-over-year basis.
Coming back to Tesla, the EV behemoth’s updated Model 3 and forthcoming Model Y Refresh are expected to boost sales. With the automotive sector constantly seeking the latest advancements, Tesla aims to sustain sales growth in the coming quarters by revamping its two most popular models in 2024.
But Investors Should Be Mindful of Near-Term Woes
While autonomous driving and FSD software will be key to the company’s future success, investors should not ignore the challenges Tesla is currently battling.
The company is resorting to price cuts and incentives to spur sales. While that might have stimulated demand in the second quarter, it is also likely to cause margin compression.
Tesla has ignited an EV price for over a year. It has been offering discounts and incentives, including low-interest loans and more affordable leasing plans, in the United States, China and Europe, which are impacting its profit margins. Wells Fargo anticipates that Tesla's automotive gross margins, excluding environmental credits, will decline amid additional price cuts as the year progresses. Amid intense competition, the pricing pressure will only increase, squeezing its margins. The Zacks Consensus Estimate for 2024 EPS implies a year-over-year contraction of 21%.
The company's EV sales may not continue to be its primary growth driver for much longer. Tesla needs to develop other businesses and generate income from additional sources to support and complement its EV operations.
TSLA Not Trading Cheap Now
Well, Tesla does command a high valuation, given its innovative capabilities and high growth potential compared to traditional automakers. But still, we believe that its valuation is still a bit too stretched given its current challenges. Also, it needs to be seen if Tesla can deliver on its promises regarding a lower-priced model and advancements in self-driving technology. If it progresses well on that front, it could signal a significant revival for the company. If not, things would get really tough for this EV pioneer. TSLA shares currently trade at 6.98X forward earnings, way higher than the industry’s 1.52X.
Image Source: Zacks Investment Research
Wait for a Better Entry Point
If Musk and Tesla successfully execute their new self-driving and AI plans, investors could see the stock rise significantly in the next 6-12 months. Current shareholders should avoid taking profits now, as the stock is trading above its 50-day and 200-day moving averages, indicating a bullish trend. Holding onto the stock could yield substantial long-term returns.
However, for potential investors, it might be too early to buy in. Tesla's history of missing deadlines adds a layer of uncertainty. Investors should keep an eye on the upcoming results on Jul 23, as margins will be a key focus. Additionally, the highly anticipated Robotaxi event on Aug 8 will provide further insights into Tesla's progress in autonomous vehicles. It would be prudent to wait for updates on these factors before making an investment at current levels.
Tesla carries a Zacks Rank #3 (Hold) now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.