Wall Street comfortably digests Tesla’s Q2 results

Tesla Batteries

Tesla isn’t like other companies, and you can never tell how Wall Street will react to a particular quarterly earnings report. Like gourmands digesting a culinary oeuvre, those of us who aspire to be seen as wise have learned to wait a day or so to let things settle before passing judgement (or making stock trades).

There was a lot to like in the latest report, and despite a larger-than-expected-but-not-really-unexpected loss, TSLA shares surged, ending the trading day up well over 15% and finally delivering the short burn that Elon has been promising (the WSJ reports that the shorts remain unrepentant, so one hopes that more conflagrations are in store).

CNBC published a roundup of the overwhelmingly positive comments from stock analysts.

Tesla delivered a record $4 billion in revenue, slightly beating analyst estimates, and reported “increased rates of production, improving margins, and cost cutting,” all of which bodes well for Tesla’s goal of turning a profit this year. That profit depends on increasing production of Model 3, which Tesla says is firmly on track. The company delivered 40,768 vehicles in the second quarter, of which 18,449 were Model 3s.

While the click-hungry media mine an endless vein of disasters large and small that supposedly affect Tesla’s future, more focused observers believe that only two questions really matter at this point: Is Model 3 selling, and is it profitable?

Tesla has now officially confirmed the answer to the first question, and if you want to bask in the glory, take a look at the monthly overall plug-in vehicle sales numbers (courtesy of InsideEVs). In July, Model 3 set a raft of records, becoming the first EV in history to crack five figures in monthly sales, and the first to rank in the 20 top-selling automobiles in the US. It’s handily outselling gas-powered competitors from the likes of BMW, Mercedes and Audi. “In July 2018, Model 3…outsold all other mid-sized premium sedans combined, accounting for 52% of the segment overall,” says Tesla.

What about profitability? The results of two separate teardowns – one commissioned by German automakers and one by Munro & Associates – have indicated that Model 3 margins could be as high as 30%. However, that’s obviously a future figure that it will take Tesla some time to achieve. In its shareholders’ letter, Tesla said that Model 3 gross margin “turned slightly positive in Q2,” and that the company is “expecting roughly 15% in Q3.”

Earning a positive margin on Model 3 should allow the company to sustain profitability, a milestone of existential importance. Musk and CFO Deepak Ahuja are adamant that no additional capital raise is imminent. “We will not be raising equity at any point,” Musk said. “At least…I have no expectation of doing so, do not plan to do so.” And again: “We certainly could raise money, but I think we don’t need to and…it is better discipline not to.”

“From an operating plant standpoint, from onwards I really want to emphasize our goal is to be profitable and cash flow-positive for every quarter going forward,” said Musk. “We’re executing on an operating plan that keeps us sufficiently self-funded, despite our [capital expenditure] needs and our debt maturing, and still keeps a very healthy balance on our balance sheet,” added Ahuja.

As analyst Galileo Russell has explained in detail, once Tesla becomes profitable, it will no longer have to depend on the financial markets for capital, and hopefully we’ll see a slowing of the endless flood of FUD (fear, uncertainty and doubt) in the media. Bad news for short sellers and the gutter press, but good news for Elon Musk, who will be able to make rude remarks without worrying that they may cost him a billion dollars each.

But forget about the record revenues, the record-smashing delivery numbers and the buried nuggets of other news that we’ll chew on like after-dinner mints for the next few days. The really big news, as many of our media colleagues see it, was that Elon Musk didn’t get mad at anyone, and in fact apologized for being “impolite” to stock analysts on last quarter’s earnings call.

 

Sources: Tesla, EVannex, Electrek, InsideEVs