Tesla's Delivery Numbers Blew Past Estimates. So Why Isn't the Stock Rallying?
Key Points
Tesla's deliveries in Q2 were 25% higher than they were a year ago.
The company's profits have nosedived in recent years due to an increase in competition and shrinking margins.
Investors are valuing the stock based on its future growth prospects, which are based on opportunities in artificial intelligence rather than electric vehicles.
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Tesla (NASDAQ: TSLA) is a leader in the electric vehicle (EV) market, and a key metric many investors often look for is how many deliveries it made during the past quarter. Strong delivery numbers can be a great sign of rising demand and that the business is doing well.
Recently, however, Tesla reported its delivery numbers, which blew past expectations, and yet, that didn't give the stock a boost. It even fell on the news. What's going on with the stock, and could its weakness this year make for a great buying opportunity, or could it fall even lower?
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Why strong delivery numbers may not be enough to give the stock a boost
Last week, Tesla reported its delivery numbers for the second quarter, which came in at 480,126. That's significantly higher than the 406,600 that analysts were expecting. It's a massive beat on the key metric, but the stock still fell by nearly 8% the day the numbers came out. A year ago, its deliveries for the quarter were 384,122, which means these latest figures indicate a 25% increase.
While the news wasn't bad, it may have reminded investors that Tesla's core business is EVs and will be for the foreseeable future. Although that may seem obvious, the stock doesn't trade like an EV stock but rather an artificial intelligence stock, with CEO Elon Musk's focus largely on robots and visions that go far beyond EVs. Plus, the company has been offering lower-priced vehicles to be more competitive. This means that while it may generate more revenue from greater deliveries, that may not necessarily translate into huge profit growth, given its tighter margins.
Is Tesla's stock a good buy on weakness right now?
Tesla's stock is down close to 20% from its 52-week high as investors have become more bearish on the company in light of its worsening results. Last year, the company's profit of $3.8 billion was nearly half of the $7.1 billion it reported a year earlier, and down drastically from a $15 billion profit in 2023.
Shrinking profits have made the stock more expensive relative to earnings, with the stock trading at a price-to-earnings ratio of more than 370. It's a massive premium, underscoring just how much optimism is priced in and how high expectations are for the future. Tesla's EV business may be driving its revenue and profit, but not its sky-high valuation. At such a high premium, investors are taking on significant risk with Tesla's stock, as there is plenty of room for it to fall much lower.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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