Investor's Corner
Tesla Q2 2018 earnings preview: Layoffs, auto revenue, cost of Model 3 ramp
All eyes will be on Tesla’s pace toward profitability on Wednesday, August 1 when the Silicon Valley company, led by CEO Elon Musk, releases its second quarter financial results after the closing bell. With the electric car maker meeting Musk’s self-imposed Model 3 weekly production target for the second quarter practically by the skin of its teeth, there is a good chance that Q2’s financial results will trigger even more volatility in Tesla’s stock (NASDAQ:TSLA). Here then, is a preview of what we can expect for Tesla’s Q2 2018 financial report and earnings call.
Automotive Deliveries and Revenue Impact
Tesla revealed Q2 deliveries totaling 40,740 vehicles, of which 18,440 were Model 3, 10,930 were Model S, and 11,370 were Model X when it released its production and delivery report earlier this month. Based on the company’s figures, the second quarter results are set to highlight the record deliveries for the Model 3, 10,000 more units compared to Q1. Charts displaying these could be viewed below, courtesy of Galileo Russell of YouTube’s HyperChange TV.
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- Tesla’s vehicle deliveries. [Credit: Galileo Russell]
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- Tesla’s Model 3 deliveries. [Credit: Galileo Russell]
Tesla posted revenue of $2.56B in Q1 for vehicle sales, including 8,182 Model 3s that were delivered to customers during the three-month period. Assuming that the additional 10,000 Model 3 delivered in Q2 averaged $55,000 per unit, Tesla could post an additional ~$550 million in earnings from the electric car. Revenue from Tesla’s vehicle leasing business likely remained flat considering that the lending option is not available yet for the Model 3. Service revenue could see a spike in Q2, however, as a result of more Model 3 vehicles being on the road.
The Price of the Model 3 Ramp
Tesla focused largely on the Model 3 ramp during Q2 2018, with the company pulling out all stops to hit its milestone of producing 5,000 Model 3 per week by the end of June. In order to achieve its target production rate, Tesla adopted unorthodox measures such as air-freighting robots and equipment from Europe and setting up an entirely new Model 3 assembly line on the grounds of the Fremont factory. These strategies likely resulted in additional expenses for the company in the second quarter. With the Model 3 ramp as a priority, Tesla’s other sources of income, such as its battery storage and solar business likely remained flat compared to Q1 as a result.
The company’s operational expenditure would likely see a slight bump in the second quarter due to the 9% layoffs that Tesla implemented to organize its workforce, considering that the restructuring included severance pay packages to employees who were terminated. In a video outlining his expectations for Tesla’s Q2 2018 results, the HyperChange TV host noted that he believes Tesla would post an estimated $4B in revenue with losses in the ~$500 million range. That’s a 43% increase in revenue compared to Q2 2017, when Tesla posted earnings of $2.8B, but also double the losses of the company’s losses in 2017’s second quarter.
Looking Past Q2’s Aftermath
Overall, Tesla’s Q2 2018 quarter financial results would likely feature similarities with Q1, in the way that the company would show strong growth but post substantial losses and negative cash flow. Nevertheless, it is pertinent to note that while Q2 2018’s numbers could be discouraging, the quarter could be seen as a turning point for Tesla, especially with regards to its Model 3 ramp. The past quarters, Q2 2018 included, have been focused on bringing the vehicle’s manufacturing up to 5,000 per week, resulting in the company investing heavily in resources to help scale the vehicle’s production.
With the 5,000/week milestone attained and with Tesla now more focused on sustaining its Model 3 production rate, Q3 2018 would most likely feature a pathway to profitability in the form of more encouraging financials than the second quarter. Provided that Tesla adopts a deliberate, realistic plan for the further ramp of the Model 3, the next few quarters could very well prove to be profitable.
Watch Galileo Russell’s take on Tesla’s Q2 2018 financial results in the video below.
Tesla stock (NASDAQ: TSLA) closed at an all-time high on Tuesday, jumping over 3 percent during the day and finishing at $489.88.
The price beats the previous record close, which was $479.86.
Shares have had a crazy year, dipping more than 40 percent from the start of the year. The stock then started to recover once again around late April, when its price started to climb back up from the low $200 level.
This week, Tesla started to climb toward its highest levels ever, as it was revealed on Sunday that the company was testing driverless Robotaxis in Austin. The spike in value pushed the company’s valuation to $1.63 trillion.
Tesla Robotaxi goes driverless as Musk confirms Safety Monitor removal testing
It is the seventh-most valuable company on the market currently, trailing Nvidia, Apple, Alphabet (Google), Microsoft, Amazon, and Meta.
Shares closed up $14.57 today, up over 3 percent.
The stock has gone through a lot this year, as previously mentioned. Shares tumbled in Q1 due to CEO Elon Musk’s involvement with the Department of Government Efficiency (DOGE), which pulled his attention away from his companies and left a major overhang on their valuations.
However, things started to rebound halfway through the year, and as the government started to phase out the $7,500 tax credit, demand spiked as consumers tried to take advantage of it.
Q3 deliveries were the highest in company history, and Tesla responded to the loss of the tax credit with the launch of the Model 3 and Model Y Standard.
Additionally, analysts have announced high expectations this week for the company on Wall Street as Robotaxi continues to be the focus. With autonomy within Tesla’s sights, things are moving in the direction of Robotaxi being a major catalyst for growth on the Street in the coming year.
Elon Musk
Tesla needs to come through on this one Robotaxi metric, analyst says
“We think the key focus from here will be how fast Tesla can scale driverless operations (including if Tesla’s approach to software/hardware allows it to scale significantly faster than competitors, as the company has argued), and on profitability.”
Tesla needs to come through on this one Robotaxi metric, Mark Delaney of Goldman Sachs says.
Tesla is in the process of rolling out its Robotaxi platform to areas outside of Austin and the California Bay Area. It has plans to launch in five additional cities, including Houston, Dallas, Miami, Las Vegas, and Phoenix.
However, the company’s expansion is not what the focus needs to be, according to Delaney. It’s the speed of deployment.
The analyst said:
“We think the key focus from here will be how fast Tesla can scale driverless operations (including if Tesla’s approach to software/hardware allows it to scale significantly faster than competitors, as the company has argued), and on profitability.”
Profitability will come as the Robotaxi fleet expands. Making that money will be dependent on when Tesla can initiate rides in more areas, giving more customers access to the program.
There are some additional things that the company needs to make happen ahead of the major Robotaxi expansion, one of those things is launching driverless rides in Austin, the first city in which it launched the program.
This week, Tesla started testing driverless Robotaxi rides in Austin, as two different Model Y units were spotted with no occupants, a huge step in the company’s plans for the ride-sharing platform.
Tesla Robotaxi goes driverless as Musk confirms Safety Monitor removal testing
CEO Elon Musk has been hoping to remove Safety Monitors from Robotaxis in Austin for several months, first mentioning the plan to have them out by the end of 2025 in September. He confirmed on Sunday that Tesla had officially removed vehicle occupants and started testing truly unsupervised rides.
Although Safety Monitors in Austin have been sitting in the passenger’s seat, they have still had the ability to override things in case of an emergency. After all, the ultimate goal was safety and avoiding any accidents or injuries.
Goldman Sachs reiterated its ‘Neutral’ rating and its $400 price target. Delaney said, “Tesla is making progress with its autonomous technology,” and recent developments make it evident that this is true.
Investor's Corner
Tesla gets bold Robotaxi prediction from Wall Street firm
Last week, Andrew Percoco took over Tesla analysis for Morgan Stanley from Adam Jonas, who covered the stock for years. Percoco seems to be less optimistic and bullish on Tesla shares, while still being fair and balanced in his analysis.
Tesla (NASDAQ: TSLA) received a bold Robotaxi prediction from Morgan Stanley, which anticipates a dramatic increase in the size of the company’s autonomous ride-hailing suite in the coming years.
Last week, Andrew Percoco took over Tesla analysis for Morgan Stanley from Adam Jonas, who covered the stock for years. Percoco seems to be less optimistic and bullish on Tesla shares, while still being fair and balanced in his analysis.
Percoco dug into the Robotaxi fleet and its expansion in the coming years in his latest note, released on Tuesday. The firm expects Tesla to increase the Robotaxi fleet size to 1,000 vehicles in 2026. However, that’s small-scale compared to what they expect from Tesla in a decade.
Tesla expands Robotaxi app access once again, this time on a global scale
By 2035, Morgan Stanley believes there will be one million Robotaxis on the road across multiple cities, a major jump and a considerable fleet size. We assume this means the fleet of vehicles Tesla will operate internally, and not including passenger-owned vehicles that could be added through software updates.
He also listed three specific catalysts that investors should pay attention to, as these will represent the company being on track to achieve its Robotaxi dreams:
- Opening Robotaxi to the public without a Safety Monitor. Timing is unclear, but it appears that Tesla is getting closer by the day.
- Improvement in safety metrics without the Safety Monitor. Tesla’s ability to improve its safety metrics as it scales miles driven without the Safety Monitor is imperative as it looks to scale in new states and cities in 2026.
- Cybercab start of production, targeted for April 2026. Tesla’s Cybercab is a purpose-built vehicle (no steering wheel or pedals, only two seats) that is expected to be produced through its state-of-the-art unboxed manufacturing process, offering further cost reductions and thus accelerating adoption over time.
Robotaxi stands to be one of Tesla’s most significant revenue contributors, especially as the company plans to continue expanding its ride-hailing service across the world in the coming years.
Its current deployment strategy is controlled and conservative to avoid any drastic and potentially program-ruining incidents.
So far, the program, which is active in Austin and the California Bay Area, has been widely successful.
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