Record Sales But Losses Still Haunts Tesla

Tesla surpassed analyst expectations showing a significant increase in car deliveries when compared to Q1 2019. However, despite increasing deliveries, Tesla still remains unprofitable.

  • The company revenues surged by close to 59% annually to reach US$ 6.3 billion, however, it registered larger than expected loss of US$408 million. Counterpoint expects profitability to improve, driven by falling battery prices and reducing manufacturing costs.
  • Gross margin declined by 125bp to 18.9% compared to Q1 2019, due to a higher mix of lower-cost Model 3’s that meant a reduction in average selling price (ASP) of vehicles and lower (EV production-related) regulatory credit revenues. The company believes increasing uptake in extra-cost autonomy features by car owners will increase gross margins.
  • By the end of 2019, Model 3 production is planned to increase to around 8,000 per week from its Fremont factory. Global long-term weekly demand for Model 3 could top 15,000 cars, according to the company. The company also expects to start Model 3 production from its Shanghai (China) plant in 2019.

Exhibit 1: Tesla Delivery and Production, Q-o-Q Comparision

Counterpoint’s View

  • Tesla did not generate a profit despite Q2 2019 being a record delivery quarter. Tesla’s long-term strategy appears to be to use its vehicles for introducing technologies to the market and generate cash by monetizing connected services and driver data, as their cars gain autonomy features, through software updates. However, the future of autonomous vehicles and robo-taxis is still unclear, relying on complex regulations and customer acceptance, making long term margins look uncertain. Counterpoint expects Tesla will remain loss-making in 2019.
  • A jump in car deliveries was expected in Q2 2019, with several deliveries not materializing in Q1 2019. However, a growth of over 50% over Q1 2019 is significant and has surpassed our expectations.
  • Tesla, which has faced criticism for delays in the production of its Model 3 and missing delivery dates, has been maturing with each passing quarter. The company increased both its production and deliveries of cars in Q2 2019 when compared to Q1 2019.
  • While challenges remain, with a positive Q2 2019, Counterpoint expects Tesla can achieve its annual delivery target of 360,000-400,000 cars in 2019. Increasing deliveries reinforces how strong the Tesla brand is, not only in the US but also in Europe and China. Counterpoint expects Tesla to remain among the top three EV players in the near future.
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