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Tesla Attempts To Add Value In Fragile Economic Times

Tesla’s Q2 production and delivery results are strong. The pundits were in a fury to predict the all-electric car company’s capacity to meet projections. Last week, Reuters outlined why he thought Tesla was expected to end its nearly 2-year-long run of record quarterly deliveries. Reuters was correct about Tesla not setting another delivery record, but the company did set a new monthly production record in June. Let’s look at Tesla’s work behind the scenes to continue its EV marketplace dominance.

First of all, the culprits for the lackadaisical delivery performance included the prolonged COVID-related shutdown in Shanghai, the effects the shutdown had for a while on Tesla’s production and supply chain, and the slow nature of new factory ramp-ups.

Nonetheless, Tesla attempts to weather pandemic and supply-chain disruptions have until now proven much better than most automakers.

What Has Musk Mentioned about Tesla Q2 Likely Earnings?

Tesla CEO Elon Musk affirmed in April that Tesla’s overall vehicle production in Q2 would be “roughly on par” with the first quarter, driven by a China rebound. At the launch of the Gigafactory in Austin that same month, Musk celebrated “a new phase of Tesla’s future.” Giga Austin is the site of current Model Y and future Cybertruck production.

But, more recently, Musk backpedaled, saying in an email, “This has been a very tough quarter, primarily due to supply chain and production challenges in China. So we need to rally hard to recover!”

Musk also joked that Tesla’s new factories in Texas and Berlin are “gigantic money furnaces,” losing billions of dollars as they struggle to increase production quickly. He admitted the carmaker’s supply-chain problems are not over and keeping the factories running remains a concern.

Wedbush analyst Dan Ives believes the “line in the sand” for Tesla’s second-quarter deliveries is 250,000. Ives has declared that anything below that will be a disappointment.

The Tesla–China Factor

Tesla’s low-cost, lucrative Shanghai factory produced roughly half of the company’s total cars delivered last year, yet Ives estimates the shutdown wiped out about 70,000 units in the quarter.

Tesla isn’t as deterred as might initially seem. Indeed, as culled from the Shanghai Securities Journal, Tesla has initiated a new program in China to incentify car shoppers to trade in their internal combustion engine (ICE)-powered vehicles for a new electric car. For Tesla buyers taking part in the program, the new ICE trade-in program will apply to Tesla’s vehicles that are ordered in China starting on July 1, 2022, and continue through through the end of the year.

In order for buyers to take advantage of the perks of the program, they’ll have to complete and sign a trade-in agreement before taking delivery of their new Tesla. Customers who take advantage of the trade-in program will reportedly receive price protection for 14 days, a 14-day extended warranty period, and a 90-day free trial of Tesla’s Enhanced Autopilot feature. Tesla will also visit the consumer’s home to evaluate their trade-in vehicle.

Barron’s says June China sales are crucial for Tesla.

Tesla Attempts & Positive Results at End of Q2

A variety of news stories showed how diligently the Tesla workforce was working for a satisfactory result at the end of Q3. A series of tweets described how Tesla execs were pitching in extra time to deliver cars to new Tesla buyers.

Another example of the continued Tesla optimism came from the Los Angeles Times, which featured an article in which owners were flipping their Teslas for a quick profit. Even though Tesla raised the price of its Model Y by 5%, to $65,990 in June, that hasn’t stopped the flippers.

Former Securities and Exchange Commission Chief Economist Larry Harris says that flipping a Tesla is indicative of how some investors adapt to an uncertain market to their advantage.

“When supply and demand are not in alignment, you get these opportunities where clever people can take advantage. We’ve seen this in all kinds of markets. When prices change significantly for scarce goods, some buyers realize that the item has a greater value to others than it does to them, and they will sell to the people willing to pay more than they would, and profit from it.”

Then there’s the monthly vehicle registration data from S&P Global Mobility. Tesla was by far the leading brand when it comes to market share for EVs in the United States. The company had 61% of the market as of April, with Ford second with 8%, and Hyundai and Kia coming in with 6% each. Tesla Model Y 14,152 registrations were 4× times those of the Ford Mustang Mach-E’s 3,287 in April.

Tesla has a “halo around the brand that is extraordinary and unique,” says Tom Libby, S&P Global Mobility analyst.

Ives asserts that, “while the softer macro will clearly impact demand around the edges in the coming quarters,” Tesla attempts for ample demand capacity to hit ~2 million units in 2023 globally is likely, with production capacity that can exceed this number when factoring in Austin/Berlin to a normalized China.

It was also interesting to see that Giga Berlin has announced a new 3rd shift for production. Workers currently check in for shifts at Tesla Gigafactory Berlin at either 6:30 a.m. or 2:30 p.m. A new 3rd shift will begin by July 4. That means the factory will be running 24 hours a day.

Tesla’s factory in Germany currently employs around 5,000 employees, and the company plans to continue hiring hundreds more every month. The Frankfurt (Oder) employment agency opened an office in Grünheide when Tesla’s factory opened and has found employment positions at Giga Berlin for more than 600 job seekers. According to the German Tesla chronicler, Mos, Tesla’s goal is to have 12,000 Giga Berlin workers by the end of 2022.

Final Thoughts

Gene Munster, managing partner at venture capital firm Loup Ventures, was cautious looking ahead to the remainder of 2022, saying the third quarter will be difficult for Tesla and other tech firms, citing a risk of recession.

Investment analyst site Forex predicts that Tesla will swiftly recover from the severe disruption seen in the second quarter; part of that anticipation is fed by the anticipation of a rebound in deliveries in the second half, driven by hopes that its new factories in Berlin and Texas will contribute to growth going forward.

Tesla shares have fallen 37% since early April, potentially hurt by Musk’s Twitter deal and the China lockdown, as well as broader economic and stock market concerns. Tesla shares were down slightly at noon on Friday to $671.20 (-$2.22 or.33%).

 
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Written By

Carolyn Fortuna (they, them), Ph.D., is a writer, researcher, and educator with a lifelong dedication to ecojustice. Carolyn has won awards from the Anti-Defamation League, The International Literacy Association, and The Leavy Foundation. Carolyn is a small-time investor in Tesla. Please follow Carolyn on Twitter and Facebook.

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