Tesla shares soared as much as 9.1% in late trading Tuesday in New York, which would be the biggest gain of 2019 on a closing basis. The stock was down 33% for the year through the end of regular trading, in part due to demand concerns that the company’s billionaire chief executive officer has repeatedly disputed.
While the results go a long way toward contradicting Tesla’s doubters, it remains to be seen whether this level of demand is sustainable — or profitable. The $3,750 U.S. federal tax credit buyers were eligible for was cut by half beginning July 1, and deliveries tailed off the last time the incentive shrank. Musk also has said the company will post a loss for the quarter, then report positive earnings in the second half.
Tesla also left out of its statement any mention of its full-year forecast for 360,000 to 400,000 deliveries, a projection it re-affirmed in its release a quarter ago. Tesla representatives didn’t respond when asked whether the company is sticking with its guidance. It will have to average more than 100,000 units per quarter in the second half to reach the low end of the range.
“The stock and future of Tesla all reside on the sustainable demand going forward and elusive profitability,” Dan Ives, an analyst at Wedbush Securities, wrote in a report.
Musk, 48, urged employees to “go all out” in the final days of Tesla’s first full quarter in which Model 3s made their way to buyers in Europe and China. Overseas demand contributed to deliveries of the sedan jumping to 77,550 units, more than all the vehicles Tesla handed over in the first quarter.
“The big picture is that something is happening around electric vehicles,” said Gene Munster, a managing partner of venture capital firm Loup Ventures and longtime Tesla bull. “The Model 3 is on fire.”
Several analysts raised their delivery estimates as the quarter came to an end, citing brisk sales to key European markets including Norway and the Netherlands, as well as the effect of incentivesthat Canada began offering in May to stoke purchases of battery-powered cars. Tesla doesn’t break down deliveries by region in its release.
One reason Wall Street remains concerned about Tesla’s profitability is shrinking demand for the higher-margin Model S and Model X. Combined deliveries dropped to 17,650 in the quarter, down more than 20% from a year ago. Investors are concerned the cheaper Model 3 is cannibalizing the company’s more lucrative vehicles.
With the U.S. federal tax credit shrinkin for the second half of the year and ending in 2020, Tesla also may have to lean more on overseas markets to buoy sales. That will test the California-based company’s ability to keep shipping and logistics costs contained.
Tesla is building a car and battery assembly plant near Shanghai, and Musk has said he hopes to pick a location for a similar factory in Europe by the end of the year.
“We made significant progress streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position,” Tesla said in its statement.
Tesla also said orders exceeded deliveries during the quarter and it expects to boost production and hand over more cars in the next three months. The number of vehicles in transit at the end of June was more than 7,400.
Tesla’s Model 3 sales are far outpacing rivals. General Motors Co. sold just 3,965 of its all-electric Chevrolet Bolt in the second quarter, while Volkswagen AG’s Audi delivered just 1,835 battery-powered E-Tron SUVs.
“Tesla has built a phenomenal brand,” said Michelle Krebs, an analyst at car-shopping researcher Autotrader. “When you think of electric vehicles, you think of Tesla. The competition isn’t really out there yet. There is a segment of the population that just wants to buy a Tesla because they like the brand and they won’t look at anything else.”