Later this week, investors await an update from electric vehicle maker Tesla (TSLA) on its production and deliveries in the third quarter. The stock was one of the biggest gainers this year, and this quarter is currently expected to set several records thanks to two large vehicle production ramps. Today I am going to look at some of the key numbers to watch and discuss the position of the stock in this report.
Before I start thinking about the third quarter, let me remind you of what Tesla has reported so far this year. In the charts below, you can see the initial numbers the company gave for production and deliveries in Q1 and Q2. As a reminder, the Fremont plant was closed for about a month and a half due to the coronavirus, mostly in the second quarter, and the Shanghai plant also experienced downtime. Final numbers will be shown in the third quarter earnings report.
(Source: Tesla Q1 version, seen here)
(Source: Tesla Q2 version, seen here)
As a reminder, the company’s initial forecast was that deliveries this year would easily exceed 500,000 units, with production even higher than that. Despite the pandemic, management left delivery forecasts in place during the second quarter report. At last week’s Battery Day event, CEO Elon Musk called for 30% to 40% growth in shipments this year, which means around 477,952 to 514,718 units.
With the above numbers from the first half of the year, Tesla will obviously need a whopping six months to reach its goals. As I pointed out in my most recent article, the company certainly has the installed capacity to meet this growth forecast. The chart below shows the last four quarters for this key metric across product and plant lines.
(Source: Tesla Quarterly Investor Letters, seen here)
If you just average the quarterly end of period production rates for the last four quarters, you get 153,750 units. Obviously, the company could do a bit more than that at this point, given the Shanghai Ramps and the Model Y, the latter of which is expected to add 100,000 more capacity units by the end of this year. This 100k extension was supposed to be in place by mid-2020, but that timeframe is entirely reasonable, given the coronavirus shutdown.
I’ll be curious to see if we get a 50k or 100k addition to the 3 / Y model numbers in the Q3 report. If you do not assume any increase in installed capacity in Q3 2020, the previous quarter’s average production by quarter would increase to 169,375 units. For my production forecast, I’ll take this number, along with the 153,750 mentioned above, and divide it by two. I will then take a week of the quarter for maintenance and other items, which gives me a production forecast for the third quarter of 149,135 units.
At the end of last week, I posted a blog post closing Battery Day in which I explained that the street average for the third quarter was 144,000 deliveries. In this article, I said that my personal prediction for deliveries was 850 units higher than that, and that production would exceed 4,000 deliveries. In the end, my production number ended up a few hundred units higher, but that’s not really a major difference.
I’m also curious to see where Tesla’s rental percentages end for the third quarter. Model Y leasing came out much earlier than previous models, so we were able to see a 3 / Y lease percentage pickup. While leasing is better for short-term margins at Tesla, it means a lot less revenue generated per vehicle delivered and can also have an impact on cash flow if a lot of leasing has taken place.
Using my Q3 number plus the actual Q1 / Q2 from the last earnings report would place the business just over 324,000 units for the nine month period. That would certainly put Tesla on track to meet the new annual forecast and give the company a chance of 500,000 units. Of course, that means another large sequential quarterly jump in shipments is needed, so investors will need to watch for price changes in the Tesla lineup in the coming weeks. The following chart can give us some clues, showing how lower the average daily US dollar close so far in the third quarter is than the second quarter average.
(Data from Yahoo! Finance – T3 numbers until 09/25)
With Volkswagen (OTCPK: VLKAF) making a major push in Europe with the launch of its ID.3, as well as the rise of the Polestar 2, I wouldn’t be surprised if Tesla at least slashed the prices of the Model 3 on the continent in Q4. The company can easily say it is passing the savings on to a weaker dollar, but that would also be a way to stimulate demand as Tesla looks to bolster fourth quarter deliveries. We’ve already seen a loan program in Norway at the end of Q3, and Tesla’s Dutch site is now highlighting the next step in that country’s EV benefits program at the end of this year.
As for Tesla shares, they remain a huge winner even looking back from their all-time high. As the chart below shows, the stock is above its 50-day moving average, which appears to be supporting the name in recent months. This key trendline is still on the upside, but it would be interesting to see what would happen if stocks fell below for more than a day or two if bad news were to come out this week.
(Source: Yahoo Finance)
Ultimately, Tesla’s Q3 production and delivery report this week is expected to be the next major catalyst for the stock, after last week’s Battery Day event turned out to be a dud. Everything indicates that a record quarter will be detailed, but how close will Tesla get to its installed production capacity? Elon Musk calling for at least 30% growth in shipments this year, a strong Q3 is just the start as the company will still need a much better Q4 to meet its annual forecast.
Disclosure: I / we have no positions in the mentioned stocks, and I do not plan to initiate any positions within the next 72 hours. I wrote this article myself and it expresses my own opinions. I am not receiving any compensation for this (other than from Seeking Alpha). I have no business relationship with a company whose action is mentioned in this article.
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