Tesla’s blowout quarter comes with a warning sign

Tesla (TSLA) finally gave investors the number they had been waiting for.

The electric-vehicle maker produced a lot more automobiles than Wall Street expected in the second quarter, giving bulls a much-needed data point following a tough stretch for CEO Elon Musk’s company.

But the stock market did not rejoice for long.

Tesla shares plunged on the release, showing that investors did not view the delivery beat as a clean success. Instead, the reaction highlighted a broader concern about Tesla’s company.

The company may be selling more vehicles again, but Wall Street wants to know what those sales are worth.

That is the actual problem presently. A solid delivery quarter can help shift the conversation regarding demand but doesn’t necessarily resolve questions around pricing, incentives, profits, or whether Tesla’s valuation still makes sense.

Tesla isn’t priced like a regular automaker. That implies investors are asking more than if the company can move more vehicles. They want to see if those cars can drive a much wider growth story around autonomy, AI, energy storage, and robots.

“And finally I shorted Tesla at 416.22. Happy it jumped back to this level,” Michael Burry wrote on Substack.

Tesla’s valuation makes every delivery report bigger

Tesla’s delivery figures are more important than most automakers’ quarterly sales statements.

That’s because many investors still see Tesla as more than a car company. Musk has been saying for years that the company’s future is self-driving technologies, robotaxis, artificial intelligence, energy storage and humanoid robots.

That’s part of why Tesla is valued so differently than incumbent automakers.

But that is a concern as well.

But when investors are buying into a future technological platform, the main car business has less potential to disappoint. Strong deliveries help, but only if they mean Tesla can grow without sacrificing too much revenue.

That explains the weird market reaction to the second quarter data.

On paper, Tesla’s figures looked good. The company delivered over 480,000 automobiles, considerably surpassing forecasts. That also was a big improvement from the first quarter, when deliveries were at 358,000 vehicles.

And yet the stock dropped.

That means investors are looking past the headline number. They want to know, did Tesla meet the delivery estimate because demand actually got better or did they employ pricing changes, incentives or inventory reductions to get the cars out the door before the end of the quarter?

More Tesla:

That counts.

If the delivery bounce came with robust pricing and excellent margins, it might help reinforce the bull narrative that Tesla’s vehicle business is stabilizing. If the delivery beat came at the expense of profitability, it may look less dramatic when earnings arrive.

Tesla deliveries beat forecasts, but investors wanted more

The electric vehicle maker said it delivered 480,126 vehicles in the second quarter. The company built 451,758 cars and deployed 13.5 gigawatt-hours of energy storage solutions.

The number delivered was far above the business-collected analyst average of 406,024 automobiles.

The bulk of the quarter’s deliveries were from Tesla’s main Model 3 and Model Y lines. The rest of the 12,364 deliveries were from other models. Tesla delivered 467,762 Model 3 and Model Y automobiles.

That mix highlights how dependent Tesla remains on its two highest-volume vehicles.

It also explains why investors are so keenly watching the next phase of the company’s product plan. Tesla has hyped robotaxis and AI, but it still relies mostly on sales of the Model 3 and Model Y to power its present financial engine.

Tesla’s delivery rebound hides a harder truth

Alex Wong / Getty Images

Tesla made more cars than it shipped, which helped it beat delivery expectations. That means the corporation worked some of the inventory for the quarter.

That can be a positive sign if demand is recovering. It can also raise margin questions if the inventory drawdown required more aggressive pricing.

The market’s reaction proved those questions are not academic.

Tesla shares dipped after the delivery news, even though the business smashed expectations. That drop took the report away from a straight-up triumph and into more of a setup for a tougher earnings test.

Michael Burry’s Tesla short adds to the debate

The delivery report was released immediately after a high-profile bearish call.

Michael Burry, the investor who called the subprime mortgage crisis ahead of time and was later featured in “The Big Short,” said he had shorted Tesla at $416.22.

Burry did not say how big the position was.

His Tesla short was part of a bigger negative position, partly driven by concerns over overheated valuations in artificial intelligence and semiconductor-related stocks. Still, the Tesla wager garnered attention because it came before the automaker’s one of its best quarterly reports in years.

Tesla: Key second-quarter numbers

480,126: Vehicles delivered during the second quarter.
451,758: Vehicles produced during the second quarter.
467,762: Model 3 and Model Y vehicles delivered.
12,364: Deliveries from Tesla’s other vehicle lineup.
13.5 gigawatt-hours: Energy storage products deployed during the quarter.

Burry’s bet isn’t a sign Tesla is overvalued. But it does suggest a division over the stock.

And Tesla bulls can point to the delivery comeback as proof of demand recovering. Bears can also point out that the company still has to prove that those sales came with enough profit to warrant its price.

That leaves Tesla’s next earnings report as the big next test.

Investors will focus on vehicle gross margins, operational income, free cash flow, and any remarks from Musk regarding price patterns. They’ll also be looking for any updates on robotaxis, autonomous driving and artificial intelligence, as those companies remain important to the long-term bull thesis for the company.

For now, Tesla has demonstrated it can still sell many cars.

The difficult question is whether it can do that without sacrificing the kind of profitability investors demand.

Tesla’s next test is about profit, not volume

Tesla’s Q2 delivery report offered bulls something essential.

That suggested demand was not slowing. That demonstrated the corporation could still outperform Wall Street’s forecasts. It also implied that the first quarter may have been a transitory bottom rather than the start of a further decline.

But the stock’s fall demonstrated that Wall Street isn’t prepared to see the report as a full reset.

The explanation is simple: deliveries are not revenue.

Margins might shrink, costs can increase or incentives can erode profitability, meaning a company can sell more automobiles and still disappoint investors. This is particularly true for Tesla, where the stock’s price doesn’t allow much room for typical carmaker economics.

Tesla’s energy-storage business has its own unique characteristics. The company added 13.5 gigawatt hours of energy storage devices in the second quarter, providing investors another area to analyze when full financial results are released.

But at the end of the day, the automobile business is the crux of the question.

If Tesla reports better-than-expected numbers, the drop in the price after the news could seem overdone. If the beat comes at the expense of margins, investors may conclude that the market was justified in ignoring the headline statistic.

And that’s why the Tesla delivery win posed a tougher question.

The company showed it can still build more automobiles than anticipated. Now it has to show that such automobiles can still provide the profits Wall Street demands.