Electric car giant Tesla had its stock plunge over 10 percent in after-hours trading after posting a $408 million loss in Q2 2019—despite shipping record numbers of cars, CNBC reported yesterday.
The company produced about 87,000 cars in the quarter and shipped some 95,200 of them throughout the quarter, per the Verge, and generated about $6.3 billion in revenue. The $408 million is an improvement over its $702 million loss the prior quarter, and some $117 million off the losses were slated as “restructuring charges related to layoffs and store closings,” the site wrote. Tesla also said it ended the quarter with $5 billion in cash, more than at any point in its history, and as the New York Times noted, the 95,200 shipped cars are a 50 percent increase from the prior quarter.
However, the Times wrote that the showing was still under analyst expectations, resulting in the stock drop:
The second-quarter loss amounted to $2.31 per share. Revenue jumped to $6.3 billion, from $4.5 billion in the first three months of the year.
Both figures came in below Wall Street’s expectations. Analysts had expected a loss of $1.27 per share and revenue of $6.5 billion, according to FactSet. Tesla shares fell about 10 percent in extended trading. Before the earnings report, the stock had closed at $264.88, up 1.8 percent.
As the Times noted, Tesla is spending heavily on a Model 3 plant in China and fueled the record deliveries in part by slashing prices (including a $1,000 reduction of the cheapest Model 3’s price to $38,990 last week). It is “unclear how much money, if any” Tesla makes on the cheaper versions of the Model 3, and the entire line makes up about 80 percent of the deliveries, the paper wrote. An additional problem is that sales of its more expensive cars, the premium Model S and the SUV Model X, are in decline as customers pick up the Model 3.
“It is obvious the appetite for the Model S and X is not that strong,” Cross-Sell Reports general manager Shane Marcum told the Times. “The Model 3 is cannibalizing sales of the S and X.”
Per the Wall Street Journal, the record number of shipments actually left Tesla with revenue “more than 10% below the previous record, set in the fourth quarter of last year.”
Tesla recently upgraded the Model S and X to have 10 percent higher range, faster charging at Supercharger stations, and a new air suspension system, but CEO Elon Musk has quashed rumors that Tesla has plans to introduce entirely new models of the cars.
“There may be a false expectation in the market that there’s, like, some big overhaul coming for S and X which then, you know, could cause people to hesitate to buy if they think there’s like some radical redesign coming, which is why I emphasized publicly that this is not the case,” Musk told reporters during an earnings call on Wednesday, according to the Verge. “The Model S and X today are radically better than the ones that when we first started production, especially the S. Like, a 2013 or 2012 Model S, compared to today’s Model S — it’s night and day.”
Musk added that he hoped improvements to Tesla’s “full self-driving” Autopilot feature, which can be injected into the company’s vehicles via a simple update and costs several thousand dollars, will convince more customers to shell out more cash, the Verge wrote.
But despite improvements, at just over 158,000 cars shipped Tesla remains less than halfway to its target of 360,000 to 400,000 deliveries in 2019, according to the Times, and the continued phaseout of a federal electric vehicle tax credit (down from $3,750 to $1,875 as of July 1 and disappearing entirely at the end of the year) may hurt demand. Its forthcoming Model Y SUV won’t be entering production until at least late next year, and pickup/semi trucks will follow only after that. As Ars Technica noted, hitting the Model Y launch date will require increasing capital expenditure significantly at a time when Tesla has been trying to slash them; Tesla estimated it will spend $1.5 to 2 billion in capital expenditures in 2019, a reduction from its previous predictions.
That leaves Musk in an uphill battle to achieve Musk’s goal of breaking even by Q3 2019 and achieving profitability by the end of the following quarter, as the Times reported he said during the earnings call.