Electric car maker Tesla's global deliveries in the second quarter fell nearly 18 percent from the first quarter, the company's first quarter-over-quarter decline in two years, due to a tight supply chain, plant closures and a shortage of raw materials used to produce the car's batteries. While the company's year-over-year delivery numbers remain bright, the second-quarter performance has left many wondering: Is this just a temporary phenomenon or a harbinger of things to come for the rest of the year.
Tesla will report its second-quarter earnings on Wednesday, followed by a conference call with analysts, a report that will provide insight into how Tesla is dealing with these headwinds, how it continues to develop its network of Supercharger stations and improve its Assisted Driving software. After the stock market closes on Wednesday, Musk's conference call with analysts will likely delve into other aspects of the company and shed light on its long-term vision for the company.
I. 2022 production target critical
For Tesla, this will be a make-or-break moment for it. Wall Street expects Tesla to report second-quarter revenue of $16.88 billion. This represents a 2.5% decline in revenue compared to the same period last year. But the number is still relatively impressive considering that Tesla's Shanghai plant had shut down production in the second quarter.
On the earnings front, Tesla is expected to report adjusted net income, operating profit and EBITDA figures, all of which are down more than 10 percent from the same period last year. Among them, adjusted earnings per share is $1.83.
Investors will be more focused on Tesla's future path and what CEO Elon Musk and executives have in store for the third quarter and the second half of 2022. The most interesting questions will focus on production increases at the Berlin, Germany, and Texas, U.S., plants, whether the Shanghai plant resumes full operations, and whether Tesla will reaffirm its 2022 delivery target of a 50 percent compound annual growth rate. To maintain that rate would mean Tesla would deliver about 1.4 million to 1.5 million vehicles in 2022.
Deutsche Bank analyst Emmanuel Rosner wrote in a report to clients that he expects Tesla to maintain its annual delivery target, which means "significant sales growth in the second half of the year.
Rosner put Tesla on the bank's short-term "Catalyst Call Buy List" and recommended that clients continue to buy Tesla shares after the company's pullback this year. As of Tuesday afternoon local time in the United States, Tesla shares have fallen 31% so far this year, but still up 10% from last year.
As for future models, investors, analysts and Tesla fans are curious to know the latest on the mass production of the electric pickup truck Cybertruck, and whether the "self-driving cab" product Musk mentioned during last quarter's earnings call is still planned for 2024. The Cybertruck is scheduled to go into production next year, and the self-driving cab is considered a self-driving vehicle without a steering wheel or pedals.
Multiple challenges may disrupt Tesla's business
Tesla's sales and profits have soared in recent years, but it has also encountered major challenges. The company recently announced that the executive in charge of the Autopilot program, the company's driver-assisted driving system, will leave Tesla after car production fell consecutively for the first time in nine quarters due to supply chain disruptions. On top of that, Musk is embroiled in a bitter court battle with social media company Twitter over his intention to drop a $44 billion buyout deal. All of these challenges threaten to further disrupt Tesla's business in the context of a global economic slowdown.
Tesla will report its second-quarter 2022 earnings on Wednesday local time in the U.S., when investors will be watching to see how the company responds to these challenges. Analysts expect Tesla's adjusted earnings per share (EPS) and revenue to grow rapidly, but at a significantly slower rate than in the same period a year ago.
Investors have already seen Tesla's key metrics announced on July 2, namely second-quarter vehicle production figures, which are preliminary indicators of earnings and revenue. Tesla announced that it produced 258,580 vehicles in the second quarter, up more than 25 percent year-over-year. Despite the significant growth, this is the slowest quarterly vehicle production growth since the epidemic began in the second quarter of 2020.
Tesla investors may also be closely watching the latest developments in Musk's battle with Twitter. Musk and Twitter board members engaged in a high-profile sparring match after the company was offered for $44 billion earlier this year, leading to Musk's recent announcement that he intends to back out of the deal. In response, Twitter sued Musk in an attempt to force him to complete the acquisition. The deal currently represents a sizable premium after Twitter's stock price has plummeted in recent months. The legal battle is likely to be protracted.
While the deal is not related to Tesla Inc., Musk did secure a loan against his Tesla stock to ensure partial funding for the deal.
Last year, Tesla shares outperformed the broader market, but were never stable enough. After rising sharply to a high in November 2021, the stock plummeted and has been oscillating between sharp gains and declines since then. The stock came close to its November high twice in January and April 2022, but has fallen sharply immediately thereafter. After falling to its low since 2022 in May of this year, the stock has traded mostly sideways. As of July 16, Tesla's 1-year historical total return of 10.7 percent was higher than the S&P 500's -11.4 percent.
Tesla's adjusted earnings per share performed well during the epidemic. The company will earn at least twice as much per share in each quarter from the first quarter of 2020 through the first quarter of 2022 as it did in the same period the previous year. It grew by more than 300% year-over-year in the first quarter of 2021 and by 232.2% in the second quarter. Today, analysts expect adjusted earnings per share growth to be much more modest. They estimate a growth rate of 26.6% for the second quarter of 2022, which is the lowest growth rate since the fourth quarter of 2019.
Tesla's revenue growth remains strong. In the past nine quarters, the company has only experienced one revenue decline in the second fiscal quarter of 2020. Elsewhere, revenue growth rates ranged from 31.8 percent to 98.1 percent in the first quarter of 2020 and the second quarter of 2021, respectively. Analysts expect Tesla's revenue to grow 41.1 percent in the second quarter of 2022, less than half the growth rate of the same period a year earlier.
Third, four areas of greatest concern
After a setback in the first quarter, Tesla showed that it is not immune to the macro pressures of a slowing global auto industry. The company blamed its disappointing second-quarter production numbers on the New Crown pneumonia outbreak, which led to the closure of its Shanghai plant.
Tesla's main business remains building electric cars, and it needs to continue expanding production to increase revenue and profits. However, Tesla has faced significant challenges over the past year related to global supply chain disruptions. Musk has said that supply constraints on raw materials and the challenge of expanding production are the main obstacles to growth difficulties.
Tesla's $1 billion factory in Austin and its first factory in Europe, the $5 billion Berlin plant, did not help Tesla recoup its losses. Production was also hampered by the suspension of Tesla's main production facility in Shanghai.
In the second quarter of this year, the automaker's global electric vehicle deliveries fell 17.9 percent from a year earlier to 254,695 units, down from the 31,048 units reported in the first quarter of the year. Tesla's sales in the U.S. fell 18.3 percent year-over-year to 131,449 units.
Tesla vehicle production slowed due to the above factors. The company reported that while it produced 258,580 vehicles in the second quarter of 2022, this was the slowest rate of production growth since the start of the epidemic. Production levels were also below analysts' expectations, with widespread estimates that Tesla would produce 263,400 vehicles in the quarter. But there are signs that Tesla car production may be increasing. Analysts expect Tesla car production to grow by a robust 52 percent for the full year 2022, but well below the 82.5 percent growth rate for 2021.
Tesla will likely provide an update on Wednesday on its production outlook and the development and production status of future models, including the CyberTruck, an electric pickup truck, the RoaDSter, an electric sports car, and the Semi, an electric truck.
2. Supercharging station network
Last quarter, Tesla announced plans to cut the cost of its charging network and generate revenue in its Supercharger network by extending peak charging hours at certain Supercharger stations and charging customers for a second-generation mobile connector package, which has historically been included in the purchase price of a new Tesla.
We'll look at Tesla's plans to expand its Supercharger network in the U.S. on Wednesday and see how it transforms charging stations into profit centers. In a July memo, the White House declared that Tesla plans to begin opening its Supercharger network to other electric vehicles by the end of this year. The move will not only help Tesla attract new buyers, but also profit from customers of other electric car brands.
The question is, how will Tesla manage its existing loyal customers while bringing in new non-Tesla customers? We hope Musk will address this question on the conference call.
With the National Highway Traffic Safety Administration (NHTSA) launching a special investigation into a series of fatal accidents involving Tesla vehicles, the safety of the company's driver assistance plus is software Autopilot is once again raising concerns.
The latest investigation, announced Monday, aims to find out whether Autopilot was activated when a Tesla Model Y struck and killed a motorcyclist in California in 2021. Federal safety agencies are investigating several other fatal crashes involving Tesla vehicles in California and Florida.
Meanwhile, Tesla appears to be disbanding the team that developed the Autopilot technology. The automaker said last week that it was firing 229 data-annotation employees who were part of the company's larger Autopilot team and would close the San Mateo, California, office where they worked. The company announced the next day that Andrej Karpathy, Tesla's director of artificial intelligence and head of the Autopilot vision team, was leaving the company.
We'll hear about Tesla's plans to develop Autopilot software and improve its safety record.
4. Master Plan
Musk hasn't mentioned Tesla's Master Plan 3 since he mentioned it in March of this year, when he said it would take Tesla to the "limit". At the time, he tweeted that plans for deploying artificial intelligence and scaling up operations would dominate the next phase of Tesla's long-term strategy.
Musk tweeted "Tesla's main research object will be scaled to the extreme, which is needed to move humanity away from fossil fuels and artificial intelligence. But I'll also include sections on SpaceX, Tesla and The Boring Company."
Will Musk discuss Master Plan 3 again during Wednesday's analyst call? Does Tesla have too much on its plate right now? We'll see about that.