The article is written by Tina Teng & Kelvin Wong, Markets Analysts, CMC Markets APAC & Canada
Tesla has always been deemed a superstar for its meteoric growth, in line with its CEO Elon Musk’s high-key profile on social media platforms such as Twitter. The share's price has dropped 38% year-to-date due to a broad sell-off amid looming recession fears. There is a lot for investors to digest regarding Tesla’s stock performance from a drop in delivery numbers in the second quarter to the Twitter acquisition deal which is now in a legal battleground. To make a long story short, can Tesla’s second-quarter earnings beat expectations again?
Downbeat delivery numbers
Tesla delivered 254,695 cars in the second quarter, which is the first time that the EV maker failed to maintain delivery growth numbers due to a two-month lockdown in Shanghai. The figure was also short of the estimate of 261,181, and less than 310,048 recorded in the first quarter. However, on a year-on-year basis, it is still higher than the same period last year. At the same time, Tesla’s worldwide production hit a record high in June after Shanghai eased the Covid-related restrictions, with a 145% jump in the delivery numbers recorded in China, suggesting that the momentum is still strong.
Tesla has aimed to produce half a million of its electric cars at each of its four factories for a total of approximately 2 million cars annually. However, the newly built Gigafactory in Berlin has not been able to run at its full capacity, and production was hugely disrupted in the Shanghai factory due to Covid lockdowns. In 2021, the company delivered 936,172 cars. CEO Elon Musk has expected its car delivery to grow at least 50% in 2022. But the recent lockdowns in Shanghai have made the target harder to achieve, with all hopes now pin on the second half of the year.
Apart from production disruptions caused by Shanghai’s lockdowns, the shortage of semiconductor chip supplies is another major issue for Tesla. In addition, the company laid off hundreds of workers on its Autopilot team when the EV maker shut down a California facility. Elon Musk has also indicated cutting 10% of the workforce in expectation of an economic downturn.
A possible slowdown in revenue growth
Despite a consistent record beat on earnings estimates in the last two years, Tesla might not be able to avoid a weakening growth environment amid the global headwinds. The softened delivery number will most likely lead to a slowdown in revenue growth in the second quarter. In addition, Tesla has incurred high operating costs in setting up productions in both Texas and Berlin factories, and the current output numbers cannot make up for the high expense just yet, which may also result in a drop in profit margin. Wall Street’s forecast on Tesla’s earnings per share is $1.81, and $16.521 billion for the second quarter versus $3.22 and $18.76 billion respectively in the first quarter. Tesla's Price to Earnings Ratio (P/E) is near 100, which is a relatively high-valued growth stock compared with other big tech companies, such as Nvidia at 45, and Apple at 25. Given its higher valuation against other mega-cap US tech firms, the risk of a significant negative adjustment in the share price of Tesla is likely to be greater if its earnings disappoint.
Sandwiched within a sideways range configuration since May 2022Source: CMC Markets as of 18 Jul 2022 (Click to enlarge the chart)
The share price of Tesla (TSLA) has plummeted by -50% from its 1,243.30 all-time high printed on 4 November 2021 to hit an intraday low of 620.63 on 24 May 2022. In addition, it has traded below its 200-day moving average since 5 May 2022 which suggests TSLA is in a bear market territory.
Recent price actions have started to oscillate within a medium-term sideways range configuration since 24 May 2022 with its range’s upper and lower limits at 787.20 and 620.60, respectively.
Prefer to have a neutral stance for now; only a clearance above the range resistance at 787.20 may trigger a corrective rebound towards 943.60 (also close to the 200-day moving average) within a major downtrend phase. On the flip side, a break with a daily close below 620.60 revives the impulsive down move sequence for a further drop towards the next supports at 539.80/538.75 and 420.00/400.00 (close to the lower boundary of the major “Expanding Wedge” configuration).