On July 3, 2024, Tesla reported global automotive deliveries for Q2 that were 4.8% lower year-over-year. That follows an 8.5% year-over-year drop in Q1. This was the first-ever 2-consecutive quarters of annual delivery number declines for Tesla.
Despite two annual declines in quarterly car sales, Tesla still trades like a growth stock with a 2025 PER of 70x based on consensus estimates. The stock rose by 15% going into the Q2 delivery report over the prior five trading sessions and rose by another 10% after the results were reported this morning.
Imagine a 10% rally on a 2% beat (which happens only in an “Everything Bubble”). While Tesla’s Q2 deliveries of 443,956 vehicles were 2.4% above consensus estimates of 433,397, it should be noted that consensus dropped by 8% since mid-April. If those estimates hadn’t dropped, Tesla’s Q2 deliveries would’ve missed by 7%.
Figure 1 from Bloomberg below shows how much Q2 2024 delivery estimates have come down over the past 12 months and accentuates how ridiculous this celebratory 10% rally in Tesla’s stock was today.
Motorhead is having a hard time reconciling the fact that Tesla shares move, and in this case moved dramatically upward in anticipation of delivery metrics, and then on a small "beat". It is also a "beat" that was possible due to dramatically lowered analyst expectations for deliveries.
Analysts develop estimates for Tesla deliveries, an unaudited non-financial metric, and spend a lot of time reviewing and revising them. That points to a meeting of the minds between Tesla and its analyst community that this number is material to understanding its share price.
Tesla share prices are divorced from the company's fundamentals. Everyone knows that. And so the share price is moving on the disclosure of deliveries, an unaudited number that can be, and has been, changed in the midst of the reporting process.
More than once Motorhead equates deliveries with sales. Deliveries are not “sales” because deliveries is a management-created number reported almost immediately after the quarter closes. Despite knowing that deliveries are a non-financial, operational metric, and "sales" are a financial number that, in its financial statement presentation as revenue, has to follow GAAP accounting standards.
Even Tesla knows to tell you that deliveries are only a performance metric, and not to assume deliveries equals "sales" or revenue.
Tesla vehicle deliveries and storage deployments represent only two measures of the company’s financial performance and should not be relied on as an indicator of quarterly financial results, which depend on a variety of factors, including average selling price, cost of sales, foreign exchange movements and others as to be disclosed in the 10-Q for the quarter ended on June 30, 2024.
Tesla, however, emphatically highlights this non-financial metric. The company announces it first outside of its earnings press release, and reports it on its Investor Relations Quarterly Disclosures page, linking to it twice, under two columns: one reminding investors of the actual later "earnings date" and one labeled "Production and Deliveries". Tesla signals the market that this operational metric is very, very important. So, it is not surprising that investors, analysts, and journalists equate equate deliveries to top-side revenue and growth in their mind and that the market reacts to its disclosure.
The automotive production and deliveries information is typically released on the first business day after the quarter closes, and is followed about three weeks later by the unaudited earnings press release — a slide deck with results and explanation — and the conference call. The official 10-Q is filed with the SEC one-two business days after that.
At year-end the 10-K Annual Report can take a little longer to be filed with the SEC but Tesla is one of the companies that files its annual report quickly. I have written at MarketWatch about how a quick turnaround on the 10-K filing, such as Tesla's , is not necessarily a sign of quality financial reporting or a quality audit. It may mean the auditor has adopted the client's financial reporting goals as a result of biased decision making and lower judgment and discretion quality.
The vast majority of companies that reported their fourth-quarter earnings between Jan. 1 and Feb. 1 did so without completing an audit, a practice that experts say could have troublesome consequences.
Data provided by research firm Audit Analytics shows that of 174 companies with a market cap of at least $10 billion that reported earnings in that period, just six filed their 10-K and auditors report with the Securities and Exchange Commission on the same day or earlier.
“They want investors to have timely information but they also want the information to be reliable,” said Schroeder.
But the practice of leaving a wide gap between an earnings release and the release of a fully audited 10-K leaves auditors that find adjustments are needed in a tough spot. They know that the market will react negatively to a revision, particularly a downward revision, and that can make them reluctant to push for changes. That risk increases if the auditor fears losing a client or is too close to the client.
“In this situation, auditors frequently exhibit biased decision processing and lower judgment quality after adopting the client’s financial reporting goal of avoiding any adjustments,” Schroeder said last month when interviewed by MarketWatch.
Only A Few Companies Are Reporting Earnings That Are Fully Audited Marketwatch
Let’s go back to 2019 to see how closely the Tesla deliveries metric is watched and how easily analysts are drawn into the game that Elon Musk plays with it. Even though Musk settled with the SEC about tweeting he may take tesla private, the famous “420” tweet, and promised to have future tweets pre-cleared by a “Twitter sitter” he seemed ot continue ot go out of his way to poke the SEC, and deliveries were an easy way to do so since they are so closely watched. The New Yorkerreports:
During an interview that aired on “60 Minutes,” in December, he said that he wasn’t seeking pre-approval of his Twitter postings, as his S.E.C. agreement said he was supposed to, and told the correspondent Lesley Stahl, “I guess we might make some mistakes, who knows. Nobody’s perfect.” He went on to add, “Let me be clear. I do not respect the S.E.C. I do not respect them.”
Then, on February 19th, he struck again, tweeting, “Tesla made 0 cars in 2011, but will make around 500k in 2019.” A few hours later, he posted another message that seemed to correct the first one: “Meant to say annualized production rate at end of 2019 probably around 500k, ie 10k cars/week. Deliveries for year still estimated to be about 400k.” The initial message appeared to contain details about production metrics that might not have been public, while the second one looked to be the result of some internal intervention to correct the first. The S.E.C. demanded to know whether the tweet had been pre-approved according to their settlement. After concluding that it had not been, the S.E.C. filed a motion asking the court to find Musk in violation of their agreement.
(According to a statement from Musk, “The tweet in question was true, immaterial to shareholders, and in no way a violation of my agreement with the SEC.”)
If you believe that, I have a bridge in Brooklyn I can sell you for $1,595.5 million.
And then again on November 27, 2021, an internal email Musk sent to staff was "leaked" to press. It purported to encourage Tesla staff to reduce the peaks and valleys that come with repeated end of quarter pushes to get deliveries out — Tesla's version of stuffing the channel to get revenue recorded.
The result was that analysts completely blew their estimates, or rather they were convinced by this "intelligence" to stick with low estimates so that Musk could blow through them. Via Teslarati:
"...convince Wall Street analysts that Tesla would have a slow Q4 and underwhelming 2021? It appears that, after the electric automaker announced its largest quarter as a company and delivered its largest full-year delivery and production numbers on Sunday, the question remains: Where did analysts get it wrong?
“Street is slow and has a cautious bias, nobody wants to look like a fool, bullish on deliveries,” Pierre Ferragu of New Street Research said. “Street did react to Elon’s email about not rushing end of Q deliveries, remained cautious and missed monster deliveries in China that went public only last week,” the analyst said, according to a report from Barron’s."
The following year you can see how much effort so many analysts are putting into coming up with estimates for deliveries, an unaudited operational metric.
Even the day before the numbers are announced analysts are pinning tails on the donkey.
Tesla has posted its fourth quarter and full-year 2022 vehicle delivery and production report. As per the electric vehicle maker, it was able to produce a total of 439,701 and deliver 405,278 vehicles in the fourth quarter.
For context, Wall Street was expecting Tesla to deliver about 417,957 vehicles in Q4 2022, comprised of 19,211 Model S and Model X and 396,147 Model 3 and Model Y, as per a message from Tesla IR Head Martin Viecha. The analysts also expected Tesla to deliver 1,325,161 vehicles in 2022, comprised of 68,726 Model S and Model X; 1,254,935 Model 3 and Model Y; and 11 “other” vehicles, which corresponds to the Tesla Semi, which had its first delivery event in early December.
Below was Wall Street’s final estimates for Tesla’s Q4 and FY 2022 vehicle delivery and production results.
So much pretend precision for such a fickle number.
Tesla's Investor Relations professionals even compile and share the consensus estimates for deliveries!
Here's what Tesla IR told the market coming up on year-end 2023 on September 29, 2023, via Gary Black, the Chicago-based managing partner of The Future Fund:
Tesla’s Investor Relations team has shared a compiled analyst consensus for the company’s Q3 2023 vehicle deliveries. As per the EV maker, the current consensus for Tesla’s third quarter numbers is at 455,000 vehicles.
The numbers were shared on X by Wall Street veteran and Tesla bull Gary Black, who currently has a 445,000-vehicle delivery estimate for the electric car maker. Interestingly enough, Tesla’s IR-compiled consensus is slightly lower than Bloomberg’s Q3 consensus, which is listed at 457,000 units.
On December 29, 2023, a few days before the delivery numbers were disclosed, Gary Black again knows the score based on the Tesla IR-compiled consensus of analysts now greatly reduced estimates.
What happened this time?
Tesla hit its now significantly reduced 2023 delivery guidance of 1.8 million vehicles, reporting 1,808,581 deliveries in total for the entire year. Tesla said it delivered approximately 484,507 units in total in the fourth quarter.
The tone has changed in terms of delivery, and revenue, performance coming into 2024, but analysts and Tesla beat reporters are still close on the heels of the company and its numbers. On July 1, 2024, prior to Tesla reporting the numbers on July 2, Reuters predicted that deliveries would fall, and cites the reduction in estimates by several analysts in the prior three months.
July 1 (Reuters) - Tesla's (TSLA.O), June-quarter deliveries likely fell 6%, the first time the top EV maker is set to post two straight quarters of decline, as it deals with stiff competition in China and slow demand due to a lack of affordable new models.
The company is expected to deliver 438,019 vehicles for the April to June period, according to an average estimate based on forecasts from 12 analysts polled by LSEG, seven of whom slashed their expectations in the past three months. The EV maker is expected to announce the results on Tuesday.
What happened? Motorhead told us about the curious 2Q 2024 results:
While Tesla’s Q2 deliveries of 443,956 vehicles were 2.4% above consensus estimates of 433,397, it should be noted that consensus dropped by 8% since mid-April.
If those estimates hadn’t dropped, Tesla’s Q2 deliveries would’ve missed by 7%.
Tesla’s stock price rose enough on Friday to wipe out its loss for the year and bring its gain for the week to 27%.
Shares of the electric vehicle maker closed Friday at $251.55. They ended last year at $248.48, and proceeded to fall as low as $138.80 in April.
The latest rally was sparked by a better-than-expected deliveries report for the second quarter on Tuesday. While deliveries still dropped 4.8% from a year earlier, the falloff was less steep than the first-quarter decline, and gave investors reasons for optimism heading into the second half.
In April, Tesla shares hit a 52-week low after a string of troubling developments. Sales in the core automotive business fell in the first quarter, the company downsized through sweeping layoffs and there were reports that Tesla had scrapped plans to soon produce a low-cost family car at its Texas factory.
Tesla is set to deliver second-quarter financial results after the bell on July 23.
Kolodny does try to get things back on a fundamental track by noting at the end of her report, "Automotive gross margins are likely to be in focus."
All you have to do is look at the number of media articles emphasizing how positive this performance metric "beat" was for Tesla's share price to know how important it was for Tesla to manage those analyst estimates of deliveries down in the last few months.
Source: Snap of google search results for "Tesla ticker" on Sunday July 6.
