Goldman on TSLA deliveries:
1. Aggregate deliveries for Tesla vehicles in 2Q19 came in 5% above our estimate and over 10% above consensus (both company-compiled and StreetAccount) as Model 3 deliveries surprised to the upside.
2. Further, the company noted positive progress on its logistics and delivery operations (driving some cost efficiencies and working capital improvements) as well as orders that exceeded deliveries for the quarter.
3. This is all positive newsflow in the near-term for TSLA and likely pushes shares higher in trading.
4. However, we continue to focus on the sustainability of demand for the company’s products — particularly as we believe 2Q19 deliveries and order flow was helped by the company’s release of its Standard Model 3 variant, a leasing option, and right-hand drive Model 3s, further, demand in the US was likely aided in 2Q19 by the looming second step in the phase out of US Federal Tax Incentives for TSLA vehicles that began on July 1.
5. As a result, we continue to expect some sequential stepdown in demand and ultimately deliveries as we progress into 3Q19. That said, the near-term focus will be on the full quarterly results that likely come toward the end of the month as the move to offering a lower priced Standard Model 3 variant as well as leasing option could have negative impacts on Model 3 program gross margins and FCF generation. In addition, while the company beat our estimates on absolute units, the mix was more heavily skewed toward the Model 3 (as Model S/X deliveries missed GSe by 17%); this negative mix likely weighs on our Automotive gross margin estimate of 20.6% for 2Q19
What would make Goldman more positive:
While we believe TSLA has developed a lead relative to OEM peers with respect to electric vehicle technology, we believe its operational execution has been more challenged and see its competitive lead waning as other companies launch more models and EV incentives phase out for TSLA ahead of that competition. That said, we would become more positive on the stock if the company could demonstrate a sustained lead and prove-out operational execution through:
(1) growth in TSLA vehicle demand even as competition launches new offerings and EV tax incentives wane
(2) better than anticipated demand for higher priced vehicle variants leading to higher gross margins
(3) sustained positive FCF generation that allows the company to self-fund growth
(4) successful development, introduction, and monetization of higher levels of vehicle automation.