Tesla Q2 preview: Where next for Tesla stock?

When will Tesla release Q2 earnings?

Tesla will release second quarter earnings covering the three months to the end of June after US markets close on Wednesday July 20. The electric carmaker will hold a webcast with investors at 1630 CT, or 1730 ET.

Tesla Q2 earnings consensus

Wall Street forecasts Tesla will report a 44% year-on-year rise in revenue to $17.2 billion in the second quarter. Adjusted Ebitda is expected to more than double to $5.0 billion while adjusted EPS at the bottom-line is estimated to rise 28% from last year to $1.85.

Tesla Q2 earnings preview

Tesla delivered 254,695 vehicles in the second quarter of 2022. That was way below the 282,291 forecast by Wall Street, which had already significantly scaled back their expectations to reflect a tough quarter for the company as it grappled with supply chain problems and Covid-19 disruption in China. That was down from the record 310,048 vehicles shifted in the first quarter, but still some 27% higher than the year before.

Investors are bracing for a tough second quarter, but the focus will be on the outlook and whether the ramp-up in production is starting to gain traction. Importantly, the company said output has started to improve and that production in June hit a new all-time monthly record, reinforcing hopes that deliveries will rebound in the second half of the year.

Markets currently believe that will set Tesla up for a significantly stronger second half, with analysts currently forecasting Tesla can deliver a record 378,534 in the third quarter before setting another all-time high of 444,534 deliveries in the fourth. If achieved, that keeps Tesla on course to grow annual deliveries in 2022 to over 1.4 million – marking 52% growth from 2021 to come in just ahead of its 50% growth target.

Tesla has faced numerous problems this year, but investors are hoping these headwinds can turn to tailwinds and provide new catalysts for growth.

The number one challenge in the second quarter was in China, where output at Giga Shanghai was severely disrupted by Covid-19 lockdowns that forced Tesla to shut down production and briefly halt all exports. Production has been recovering but there has still been a hangover from lockdown as its suppliers have a tougher time ramping back up. Although production in Giga Shanghai is thought to have recovered swiftly since lockdown rules eased, there is some uncertainty over the third quarter considering Tesla is temporarily shutting down the plant throughout this month and into early August in order to upgrade production lines. That may drag down its performance in the third quarter, but the upgrade should deliver major benefits over the longer-term considering it could more than double the factory’s current annual capacity.

China has been the driver of growth over the past two years and needs to get back on track, especially if Tesla continues to find it difficult to get its two new factories up and running. The company opened a new factory in Berlin, Germany, back in March to mark its first site in Europe and that was swiftly followed by the launch of another plant being opened in Austin, Texas in April.

These are key to unlocking the next phase of growth at Tesla, but both factories have found it difficult since opening as the company struggles to secure the components and labour it needs. The fact neither site has its own battery facilities yet means these are having to be shipped from its original Fremont facility or from Shanghai, and congested ports and longer transit times are making this more difficult and more expensive.

There is little doubt that the improved scale offered by both new factories will help decrease production costs over the long-term, just like Giga Shanghai did, but the challenging environment and capital intensity of such huge projects means they have bled significant sums so far. CEO Elon Musk warned in late May that both had burnt through billions of dollars as Tesla struggles to increase output – so much so that he warned about the threat of bankruptcy.

Musk has been optimistic about both plants and said the problems will ‘get fixed real fast’. Investors will be eagerly watching to see how both factories are performing and whether they will be a hindrance or an advantage in the second half. Notably, Wall Street believes Tesla continued to generate free cashflow in the second quarter, with estimates of $1.26 billion, which should help bolster its existing $18 billion in liquidity. While the ‘B’ word spooked markets, Tesla has said its cashflow should hold up so long as demand does.

There is little doubt that long-term demand for electric vehicles remains robust and that adoption will continue to accelerate this decade, but there are some concerns that demand could suffer over the shorter-term should we fall into a recession and see any pullback in consumer spending in 2022 or 2023. The automotive industry is cyclical and sensitive to the wider economy, and the outlook has continued to deteriorate as inflation continues to run rampant. Evidence suggests Tesla continues to receive orders faster than it can fulfil them, suggesting it has headroom to play with even if there is a drop in demand – although Tesla does have huge amounts of fresh capacity coming online from three factories this year. The extent of any fall in demand will largely depend on how long and severe any downturn is.

Where next for TSLA stock?

Tesla shares have fallen almost 40% since the start of the year, significantly underperforming the S&P 500 index that has lost closer to 20%.

The share price has settled over the past two months and is in consolidation mode ahead of the earnings, providing potential for the stock to breakout this week after earnings are released. The direction of any breakout will depend how the update is received.

The initial floor should be treated at $666, but $621 should be treated as a more significant level as this must hold to avoid opening the door to $570, which has proven to be a reliable level of support both in May 2022 and July 2021.

The 50-day moving average, which currently sits at $722, remains a tough ceiling for the stock to break. Although Tesla shares briefly surpassed the moving average earlier this month, it has failed to stay above here and is still testing this level. Once recaptured, it can look to break out of the current channel by surpassing $774. The 100-day moving average at $830 then comes onto the radar and this is where the 45 brokers that cover the stock believe it can return to with an average target price of $883.

The RSI has trended higher over the past month but remains in neutral territory. Trading volumes have slipped over the past 10 trading sessions but remain in-line with the 100-day average.

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