Tesla (TSLA) has surged to its highest levels since mid-January after reporting better-than-expected Q2 vehicle deliveries of 444,000. This eases fears that rising competition in China and tepid demand for EVs have severely impacted the company. However, Q2 deliveries declined nearly 5% year-over-year, following an 8.5% drop last quarter, indicating persistent challenges. To achieve these numbers, TSLA relied on price cuts and incentives to boost demand.
- In April, TSLA reduced prices on Models Y, X, and S, and lowered the price of its full self-driving (FSD) system by 33% to $8,000. This move will once again put pressure on TSLA's automotive gross margin when it reports Q2 earnings. In Q1, the automotive gross margin dropped to 16.4% from about 19% in the year-earlier quarter, primarily due to lower average selling prices (ASPs).
- The disappointing start for the Cybertruck, available only in its most expensive version, has also affected the stock. TSLA did not disclose specific delivery numbers for the Cybertruck, but June recalls suggest around 11,000 units sold since its launch on November 30, 2024. This is minimal compared to the 422,405 Model 3 and Model Y units delivered in Q2 alone.
- TSLA urgently needs a new vehicle to rejuvenate its brand and counter market share gains by Chinese competitors. China-based EV makers NIO (NIO), Li Auto (LI), and XPeng (XPEV) reported strong June deliveries, indicating rising demand for EVs in China and increased competition for TSLA.
- On a positive note, TSLA confirmed last quarter that its mass-market Model 2 vehicle is still in development and that it is ready to accelerate the launch of new models ahead of the previously communicated start of production in the second half of 2025. A reiteration of this timeline will be crucial when TSLA reports Q2 earnings.
The main takeaway is that TSLA's Q2 deliveries exceeded expectations, improving over Q1's significant miss and easing concerns about declining demand. However, TSLA continues to face substantial challenges, including rising competition, as evidenced by the year-over-year decline in deliveries.
