Some storm clouds are appearing on the horizon for Tesla bulls after a respectable second quarter.
"The elephant in the room for Tesla (and the broader market) is with dark economic storm clouds on the horizon and Musk himself thinking recession risk is imminent, what does this mean for Tesla's demand story going forward?" Wedbush Wedbush Senior Equity Research Analyst Dan Ives stated in a new note to clients. "In a nutshell, while June delivery numbers were ugly and nothing to write home about, the Street will be focused on the trajectory for the second half... and the overall demand picture staying firm."
The electric vehicle maker said over the weekend that second quarter deliveries tallied 254,695. While that represented about 27% year over year growth, it fell short of analyst estimates for 256,520. In a note, Citi Itay Michaeli pinned the miss on a shortfall in deliveries of Tesla's Model 3 and Model Y.
The electric vehicle company's performance was held back by an array of issues affecting the auto industry, ranging from semiconductor shortages to COVID restrictions in China.
Tesla's second quarter suggests demand hasn't begun to reflect consumer concerns around a recession. In fact, it's reasonable to say Tesla's results would have been stronger if not for supply chain challenges constraining demand.
But analysts generally agree that if demand were to slow noticeably in the second half of the year, it could add pressure to Tesla's bottom line at a time of high costs. That would likely hit the stock, which is down 35% so far in 2022.
"We suspect that the interplay of price and cost may matter most for Tesla earnings this year," JP Morgan analyst Ryan Brinkman said in a note to clients. "This interplay we believe presents downside risk to 2Q, given that Tesla experienced sharp battery metals inflation (as well as higher other commodity and non-commodity supply chain costs) but the price hikes of upwards of $10K it announced across its lineup generally apply only to new orders and not to existing reservations (as Rivian tried unsuccessfully earlier this year); however, as the year progresses, this pricing tailwind — should it stick — could meet positively with more recently receding battery metals costs."
Brinkman cut his profit estimates on Tesla's second quarter and full year.