Tesla’s (TSLA) share price dropped steadily lower from March through to early June, after it posted a loss of $702m in the first quarter, which was far worse than the $301m deficit predicted by analysts, as revenue declined by 37%.
These disappointing Q1 numbers broke the US electric car manufacturer’s previous back-to-back quarterly profit run.
Tax cut hits sales
A $7,500 federal tax credit for consumers, which they received for purchasing an electric vehicle has been cut, and is now being phased out after Tesla, along with other US car manufacturers, reached their tax-credit vehicle cap. That has certainly played a role in the decline in Telsa’s first-quarter revenue, as sales fell dramatically, despite the firm lowering its prices to try and compensate for the tax loss faced by buyers.
Though the US Senate has been keen to extend the electric car tax credit, US president Donald Trump is opposed to it. As well as that blow, the electric vehicle sector is hotting up, and Tesla faces increasing competition from the likes of Audi, Mercedes and Hyundai.
Tesla share price recovery
Tesla’s share price has had a rocky year, falling to a low of 178p in early June 2019, having been trading just shy of 350p in mid-January. However, a general market rebound, allied to extremely robust production numbers, published earlier in July, have helped to push the shares back above 250p. International expansion should offer a sizeable boost to production, after the company began shipping to China and Europe earlier this year.
But it’s been a volatile year for Tesla. The company went from posting back-to-back profits and meeting production goals in the fourth quarter of 2018, to reporting wider-than-expected losses and missing delivery milestones three months later. In addition to that, CEO and founder, Elon Musk, has put a fraud charge from the US Securities Exchange Commission (SEC), in relation to his releasing sensitive information on Twitter, behind him by agreeing to settle the case.
Tesla faces stiff production target
At the start of the month, the group confirmed it delivered 95,200 vehicles in the second quarter, which was a record number and higher than the 91,000 total analysts expected. The firm also produced more than 77,000 vehicles in the first three months. Tesla, guided by demanding CEO Elon Musk, has a full-year target of between 360,000 and 400,000 vehicles to be delivered. While it is encouraging to see that production levels are on the rise, the company would have to keep production at existing levels in order to reach the lower end of the full-year production target.
As a result, traders and analysts will be paying very close attention to the management’s comments in relation to production, and whether this target will be achieved. Tesla (TSLA) releases its second-quarter results after US markets shut, on Wednesday 24 July.