Tesla Sets Record For Deliveries, But Stock Price Falls

Tesla Inc.'s TSLA quarter results that were revealed on October 2 put the company within reach, but barely, of hitting the low-end of CEO Elon Musk's production target which is between 360,00 to 400,000 deliveries. The fact that the company had a record quarter for its deliveries should be good news, but Tesla's stock price fell around 4% as the number is below analyst estimates.

What happened?

Musk always emphasized two goals for the company. The first being internal for Tesla's employees and the other for the world. And Tesla didn't hit the 100,000 deliveries Musk told employees was within reach in an email that leaked last week. And this expectation is what caused the shares to jump almost 6% last week. But it's no surprise that Tesla is struggling in keeping up with Musk's ambitious goals. And the fact is that it will take another company record, or at least 105,000 deliveries to be precise, in the fourth-quarter for the company to meet the low end its annual goal's range.

The good news

Tesla did deliver a record of 97,000 vehicles and topped the 95,200 cars from the previous quarter. The company now has two consecutive quarters of record deliveries as it started ramping up production after a slow start of the year. Another piece of good news is that Model 3 deliveries were 79,600, which was higher than Wall Street's 77,010 estimate.

Profit remains a challenge

So, deliveries are up by less than 3,000, or 1.7%, from the second quarter and yes, it is a new record. But these record sales have still not made their way into profits. Moving more metal with more Model 3s at lower prices didn't do much for margins as sales of premium Models S and X declined. Bigger orders, more production and deliveries is great, but what ultimately counts are profits.

Competitors

Toyota Motor Corp. TM and Honda Motor Co. HMC have been seeing a constant increase in automotive revenue over the past few years, allowing both companies have a positive outlook for the future despite the uncertainty of the automotive market. But, the market is moving in ways that are not favourable as the first 9 months of the year, Toyota's US sales were 2.5% less from the same period last year and moreover, its U.S. sales fell 16.5% in September. This is Toyota's largest monthly decline since the company was recovering from the tsunami and earthquake in 2011. Toyota managed to keep its second place from its rival Ford Motor Company F, but its only bright spot lies in hybrid-brands that that will most likely allow it to stay on course. Profit growth is an entirely different deal, but, Tesla's quarter results surely gain in value when compared to the September struggle of the Japanese giant.

Challenges ahead

Meeting Musk's goal comes with other challenges as well. Tesla has to make way the fact that the federal tax credit that decreased in July will be entirely eliminated at the beginning of 2020. As this will decrease the consumer's buying power, analysts expect that this will harm demand and consequently, sales. And most importantly, the company needs to demonstrate it can reliably make money on the cars it sells. On the bright side, Tesla announced it is entering Q4 with an increase in their order backlog.

Gigafactory 3 to boost Q4

Tesla plans to start delivering electric vehicles this year from a new Shanghai production facility that it started building in January. It is perhaps the biggest step the company has made in its attempt to transition from being a niche electric-car maker to a global automaker.  Tariffs in China have made Tesla's cars more expensive but this project will also enable Tesla to avoid them. And Tesla did expand its reach this year as it now sells and delivers its cars to China, Australia, Taiwan, the U.K., and Eastern Europe. Tesla's mass production plant will surely ramp up production, but is it enough to meet its year-end targets?

Outlook

After the company's recent cash raise, analysts find that the "doomsday scenario" is off the table. But investors remain concerned about profits for 2020. Wall Street expects a loss whereas CEO Elon Musk finds that a break-even quarter is likely. One thing is for sure, analysts and investors will be keeping a close eye on the fourth quarter.

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