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Tesla's run of record deliveries may be reaching the end of the road

01 July 2022 - 09:14 By Reuters
Analysts expect Tesla to report deliveries of 295,078 vehicles for the second quarter as early as Friday, according to Refinitiv data. Several analysts have slashed their estimates further to about 250,000 due to China's prolonged lockdown.
Analysts expect Tesla to report deliveries of 295,078 vehicles for the second quarter as early as Friday, according to Refinitiv data. Several analysts have slashed their estimates further to about 250,000 due to China's prolonged lockdown.
Image: Justin Sullivan/Getty Images

Tesla is expected to end its nearly two-year run of record quarterly deliveries as a prolonged Covid-19-related shutdown in Shanghai hit its production and supply chain and it slowly ramps up new factories.

While Tesla CEO Elon Musk has been pursuing the acquisition of social media platform Twitter , his crown jewel, Tesla, has grappled with production glitches in China and slow output growth at new factories in Texas and Berlin.

Analysts expect Tesla to report deliveries of 295,078 vehicles for the second quarter as early as Friday, according to Refinitiv data. Several analysts have slashed their estimates further to about 250,000 due to China's prolonged lockdown.

This would be down from its record deliveries of 310,048 the preceding quarter, marking Tesla's first quarter-on-quarter decline in deliveries since the first quarter of 2020.

The world's most valuable carmaker has posted record deliveries every quarter since the third quarter of 2020, weathering pandemic and supply-chain disruptions better than most carmakers.

China has been instrumental in Tesla's rapid increase in vehicle production and Musk has praised workers there for “burning the 3am oil”.

But China's prolonged zero-Covid-19 lockdown — Wedbush analyst Dan Ives called it Tesla's “albatross” this quarter — caused deeper disruptions to output than Musk predicted. Tesla's low-cost, lucrative Shanghai factory produced roughly half of the company's total cars delivered last year and Ives estimated the shutdown wiped out about 70,000 units in the quarter.

Musk said in April Tesla's overall vehicle production in the second quarter would be “roughly on par” with the first quarter, driven by a China rebound. But he recently said Tesla had a “very tough quarter,” citing production and supply-chain challenges in China.

He also said Tesla's new factories in Texas and Berlin were “gigantic money furnaces” losing billions of dollars as they struggled to increase production quickly. He said the carmaker's supply-chain problems were not over and keeping the factories running remained a concern.

“The key question is the magnitude of the [China production] decline and whether the Fremont [California] factory was able to help support volumes,” CFRA Research analyst Garrett Nelson said.

He expects volumes to rebound strongly in the second half of the year as Tesla boosts production at the Shanghai factory with the easing of a Covid-19 lockdown.

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

Tesla has been laying off hundreds of employees in the US after Musk early this month told executives he had a “super bad feeling” about the economy and needed to cut about 10% of staff at the electric car maker.

Nevertheless, Musk has said demand for Tesla vehicles remains strong.

Tesla shares have fallen 37% since early April, hurt by Musk's Twitter deal and the China lockdown. Tesla shares were down 0.5% at $682.02 (about R11,169) on Thursday.

Musk, a prolific Twitter user who this week passed the 100-million followers mark, has not been tweeting for more than a week.

Cowen analyst Jeffrey Osborne said in a report, “investors are growing fatigued with Elon's rants” on the Twitter saga, politics and other topics.

“Many we speak to are questioning if we have reached 'peak Elon'.”


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