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Tesla share price: what to expect from Q2 results

Record deliveries in Q2 prove demand is still robust, but analysts remain at odds over whether the company can deliver returns as price targets continue to vary widely.

When is Tesla’s results date?

Tesla is set to report its earnings on 5 August 2019, and after Q1’s dismal figures and Q2’s record deliveries, there are plenty of differing opinions as to whether it can post a profit.

Last quarter’s figures weren’t easy to digest by any standard, with the company reporting a wider than expected loss, missing revenue estimates, and fears of demand waning following the reduction in the tax credit at the beginning of this year. However, in early July, Tesla posted record deliveries for Q2 that surpassed expectations and, in the process, breathing new hope that the Q1 drop in demand was one-off due to tax credit reductions that took place at the beginning of the year, logistical issues, and the belief that ‘people don’t buy cars in the winter’.

On the surface, the company seems to have put past criticism of diminishing demand after the Q1 drop of this year with orders exceeding deliveries. Few can forget the profitable Q4 results of last year and a then-record delivery of 90,700 vehicles, and hence the question remains whether the company can generate a profit with Q4’s production figures beaten. Higher delivery may aid revenue, however, there are a few significant items to take into account considering the impressive delivery numbers.

On the demand side, there are three main factors to consider:

  1. The launch of the cheaper Model 3 overseas
  2. The availability of the base model that’s priced at $35,000 instead of the previous higher end (and priced) $60,000 Model 3 version
  3. A reduction in Model S sedan and Model X sport utility vehicle (SUV) figures that at 17,650 exceed last quarter’s disappointing 12,100 but are still below Q4’s 22,300 as the Model 3 takes a bigger slice of overall Tesla models sold

In terms of profitability then, it’s been hit on multiple fronts:

  1. Selling fewer Model S and Model X where profit margins are highest
  2. Losing out on profit margins from the higher priced Model 3 with the base model being introduced
  3. Making the autopilot driver-assist feature standard on all its models, a previous $3000 premium charge

So, a rise in deliveries in this case is set to necessitate a fall in profit (as well as possibly revenue) figures from its automotive sector, as margins get squeezed. With that in mind, let’s look at the estimates ahead of the release.

Tesla’s results preview: what does Wall Street expect?

As far as wide-ranging estimates go, Tesla hardly ever disappoints. And it’s no exception this time around as the estimates continue to vary significantly for the automotive and energy company’s target. The average earnings estimate per share for Q2 is -0.52, well below the -2.9 suffered in Q1 but also nowhere near the positive figures of last year’s Q3 and Q4 releases. Revenue estimates are $6.39 billion, a near 60% sales growth on last year’s $4 billion.

How to trade Tesla’s Q2 results

Analysts are significantly mixed as usual, with the bias heavy on both buy and sell sides and the net balancing out to roughly a hold in the middle, and with bank titans mostly holding a neutral to sell outlook. IG’s retail bias is showing a 66% heavy long bias, while on the exchange it remains one of the most heavily shorted stocks, with short interest rising to over 41 million as compared to December’s roughly 26 million, as more get comfortable shorting the stock anticipating further declines.

Tesla share price: technical analysis

On the chart below, thus far we’re seeing a bear trend channel that held for most of the year until it was broken following fundamental news of the record Q2 delivery figures. But confirmation will be needed with the upcoming release, and it remains to be seen whether the bulk of shorts initiated at these lower price levels makes them susceptible to a short squeeze.

Tesla investors remain hopeful on future technological progress

That’s not to say long investors aren’t hopeful about what the company’s future holds, due to potential growth in China with its factory expected to be operational before the end of the year, fully autonomous vehicles that despite difficulties could still be a short to mid-term reality, and tougher EU rules from 2020 regarding carbon dioxide (CO2) emissions that’ll carry heftier fines and benefit Tesla which could sell its credits at an even pricier rate. What isn’t likely to change however, are analysts and traders’ wide-ranged belief of where the stock price will shift towards.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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