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Tesla Gets Ready To Report After Upside Surprise On Q2 Vehicle Deliveries

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Key Takeaways:

  • Tesla earnings this afternoon follow strong Q2 deliveries
  • Stock on a roll since falling below $200 a share this spring
  • Lower product prices raise questions for some analysts

Considering all the big news Tesla (TSLA) delivered over the last two weeks, its Q2 earnings report this afternoon might seem a bit anticlimactic.

Arguably the biggest (and best) news of the quarter is already digested. The company reported better-than-expected car deliveries for the second quarter. Earlier this month, TSLA said it delivered 95,200 total vehicles in Q2, ahead of Wall Street’s estimate for 91,000. That’s the widest beat in at least three years, according to market forecaster FactSet.

It’s also a huge turn-around from the company’s disappointing 63,000 in Q1, and might reflect some buyers deciding to jump in ahead of the Federal tax credit on TSLA’s cars being halved on July 1, Forbes noted. In Q2, the Model 3 posted deliveries of 77,550, surpassing consensus estimates on Wall Street for 74,100. Combined deliveries for the Model S sedans and Model X SUVs were 17,650, beating estimates of 16,600, according to FactSet data.

The delivery data also might confirm that the March quarter wasn’t quite as bad as people had thought, because thousands of the company’s cars were in transit at the end of March, but those deliveries ended up occurring in Q2. In other words, deliveries over time might be a little smoother than the quarter-to-quarter numbers show.

Shares Took Another Wild Ride in Q2

Smoothness isn’t a word often associated with TSLA, either the company itself or its shares. The Q2 was no different, with TSLA bouncing back quickly from a May sell-off that carried shares of the company down below $200 for the first time since late 2016. Shares recently were back above $250.

Where they go from here depends partly on whether TSLA can meet its delivery goals for the remainder of 2019. As Barron’s noted, TSLA delivered 158,000 cars in the first half—a number it might update when it reports earnings. Its goal for the year is 360,000 to 400,000, meaning it has to do a lot better in the next six months than it did in the first six months of 2019.

It might be interesting to listen to the company’s earnings call to see if executives provide investors a road map of how they plan to get to that point, especially considering the falling government tax incentives for electric car buyers.

Vehicle production was another Q2 highlight, rising to a record 87,048, TSLA said. That included 72,531 of its Model 3 and 14,517 of its Model S/X. Customer vehicles in transit at the end of the quarter were more than 7,400.

Even as it tries to grow production, TSLA has been under pressure to cut costs. The company has made workforce cuts this year, and this month it announced a revamping of its vehicle lineup. The company cut back the total number of vehicles available, making its lower-end Model 3 more affordable while raising prices on its higher-end Models S and X.

It did this, it said in a statement, “To make purchasing our vehicles even easier.” The pricing adjustment, it added, is “in order to continue to improve affordability for customers.”

Tesla said it’s reducing the price of the Model 3 by $1,000 to $38,990. The company will no longer sell the standard range versions of the Model S and Model X, raising the minimum amount people have to pay for those cars. The base version of the Model S is rising to $79,990 from $75,000, while the price of the Model X is increasing to $84,990 from $81,000.

However, lower prices for the Model 3 could mean lower margins for TSLA, which might lead to pressure on profitability. Speaking of which, analysts don’t expect a profitable Q2 despite the big deliveries. This would be the second “red” quarter in a row for the company, a troubling sign after it posted consecutive profitable quarters in the second half of 2018. The decision to lower prices also has some analysts questioning whether demand is there for TSLA’s vehicles.

In a sign that TSLA continues to work on expense control, it said it made “significant progress” in Q2 “streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position.”

Cash Check

The company’s cash position is usually something analysts monitor at earnings time, and this quarter is no different. Tesla’s wallet looked lighter at the end of Q1 due to a bond payment, expansion costs, and a high number of vehicles in transit, analysts said. One question is whether that improved in Q2, and whether management can meet its forecast for positive free cash flow in the quarter. That might help soothe chronic worries about how quickly TSLA goes through cash.

Among investors, TSLA shares continue to see a lot of love from the Millennial generation. The company’s stock has been a long-time favorite of younger investors, according to the Investor Movement Index, or the IMX, a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of retail investors.

For TSLA, the “magic” price point in early June seemed to be $200 a share. When the stock fell below that, retail investors appeared to become buyers and come back into the stock in a heavier way.

It’s pretty impressive how TSLA continues to attract younger people to its stock. People are buying what they know, but, like anything, it’s also important to do the research before buying.  Caveat emptor applies to any stock, not just TSLA.

thinkorswim chart

200 CLUB: Shares of TSLA appeared to get a lot of buying interest earlier this year when they fell briefly below $200 a share. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

thinkorswim

Tesla Earnings and Options Activity

For Q2, TSLA is expected to report adjusted earnings of negative-$0.42 per share, up from negative-$3.06 the prior-year quarter, on revenue of $6.42 billion, according to third-party consensus analyst estimates. That revenue would represent a 60.4% rise from a year ago.

Options traders have priced in an 5.5% stock move in either direction around the coming earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Implied volatility was at the 21st percentile as of this morning.

Weekly options activity has been higher in the 240- and 245-strike puts and the 275- and 285- strike calls.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100 and S&P 500 pits. I’ve also worked for ING Bank, Blue Capital and was Managing Director of Option Trading for Van Der Moolen, USA. In 2006, I joined the thinkorswim Group, which was eventually acquired by TD Ameritrade. I am a 30-year trading veteran and a regular CNBC guest, as well as a member of the Board of Directors at NYSE ARCA and a member of the Arbitration Committee at the CBOE. My licenses include the 3, 4, 7, 24 and 66.

Source: Tesla Gets Ready To Report After Upside Surprise On Q2 Vehicle Deliveries

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How China Could Ruin 2019 For Apple, Tesla, Boeing

Image result for china economy ruins america

It was 27 years ago when Deng Xiaoping observed that “Saudi Arabia has oil; China has rare earths.”

Talk about a prescient observation. In the early 1990s, China’s then-supreme leader had zero inkling of the iPhones, Tesla cars, drones, robots and high-tech fighter jets yet to come. Yet China’s dominance over these vital inputs is more relevant than ever as the trade war intensifies.

There is a pervasive view that President Xi Jinping’s government has less leverage over Donald Trump’s. Why, then, is Xi the one walking away from a truce? With Trump increasingly desperate for a win, any win, on the global stage, China could get off cheap.

Xi’s team could be misreading the moment. Or putting testosterone ahead of geopolitical peace. A more interesting reading: Beijing reckons it has more cards to play in this game than investors recognized.

In May, Xi made a pointedly-timed visit to a rare earth facility. Though not quite Saudi oil, China’s massive store of elements vital to myriad tech products gives Beijing considerable leverage over Silicon Valley.

It’s but one example of how China may have Trump over a barrel. What other cards are up Xi’s sleeve?

Louis Gave of Gavekal Research just put out one of the more intriguing lists of possibilities. On it: banning rare-earth exports; making life “impossible” for U.S. executives operating in China; devaluing the currency; dumping huge blocks of U.S. Treasury securities; engineering a plunge in global energy prices; sharp drops in orders of goods across the board.

There are a couple of other options. One, dissuading mainland consumers from visiting America. Two, pull a Huawei Technologies on pivotal U.S. companies. This latter step could wreak immediate havoc with the Dow Jones Industrial Average.

Imagine the blow if Xi’s government suddenly closed off Boeing’s access to Asia’s biggest economy. Or if General Motors found its cars parked at Chinese customs. Halting Apple Inc.’s sales would send its own shockwaves through corporate America. Curbing Chinese imports of American soybeans would do the same in agricultural circles.

So far, China has kept retaliatory moves to a minimum. Xi seems to be rolling the dice that Trump will get distracted or impatient and move on to another target—like Japan. His calculation also seems aimed at 2020. Why give away the store to Trump when Americans might elect a less erratic leader?

Weaponizing rate-earths minerals might be Xi’s first real shot across Corporate America’s bow. The U.S. has other sources, of course. If U.S. deposits don’t suffice, companies could turn to Australia, Myanmar, India, Brazil or Thailand. And Trump seems tight enough with Vladimir Putin to score some stock from Russia. But the supply chain disruptions would surely have top CEOs — who tend to be big campaign donors — calling Trump to register their dismay.

It could backfire, too. In 2019, Beijing deprived Tokyo of rare-earth metals and China’s market share has never been the same since. “Unfortunately,” Gave says, “this would give China a ‘feel-good’ boost, but be as productive as landing a mild blow on Mike Tyson’s nose. Such an export ban would undermine China’s long-term production capacity, for the simple reason that rare earths are not that rare.”

The dumping-dollar-debt option could be especially dangerous. Just like an “uncontrolled currency depreciation,” says Michael Hirson of Eurasia Group, selling huge blocks of U.S. Treasuries would “threaten blowback to China’s economy.”

Any surge in bond yields could devastate the American consumer. The shockwaves would quickly zoom from Wall Street to Shanghai. Xi might be hinting at such a move, though, as Beijing buys fewer and fewer Treasuries. At present, China has more than $1.1 trillion of U.S. government securities. Xi seems to think that’s more than enough.

Even so, markets may live in semi-constant fear of a massive bond route bearing Chinese fingerprints. Or any number of ways in which China would ratchet up tensions with Trump and vice versa.

“The path to a potential de-escalating deal is fraught with challenges as both sides dig in, and how markets react will likely help determine the outcome of talks,” say analysts at Fitch Ratings. “Over the longer term, we maintain our long-held view that protectionist trade policy led by the US is likely to persist in the years ahead, marked by cycles of escalation and de-escalation.”

Roughly a week after Xi’s rare-earths pilgrimage, he visited Jiangxi Province, the starting point of Mao Zedong-era 1934-1936 “Long March.” There, Xi called for a new one as Trump’s America does its worst to halt China’s march to the top of the economic rankings.

That hardly sounds like a Chinese leader who’s going to cave to Trump. More like one who’s in this trade battle for the long haul.

Chinese President Xi Jinping visits a memorial hall marking the departure of the Long March by the Central Red Army in Yudu County, Ganzhou City, during an inspection tour of east China's Jiangxi Province.

Chinese President Xi Jinping visits a memorial hall marking the departure of the Long March by the Central Red Army in Yudu County, Ganzhou City, during an inspection tour of east China’s Jiangxi Province.

Xinhua/Xie Huanchi

I am a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”

Source: How China Could Ruin 2019 For Apple, Tesla, Boeing

Elon Musk: Bitcoin is ‘Brilliant, Far Better’ than Paper Money; Tesla Isn’t Jumping in Just Yet

Tesla and SpaceX CEO Elon Musk believes cryptocurrency is a far better medium of transferring value than paper money, specifically lauding bitcoin for its ‘brilliant’ structure. Nearly everywhere Elon Mask goes, people want to talk about Tesla. On Tuesday, however, the media magnet went along with a change in focus by discussing his views about cryptocurrencies. His opinions come within months of a Bitcoin-related tweet that landed him in hot water with the social media platform. He ended up getting his account suspended by Twitter.

Source: Elon Musk: Bitcoin is ‘Brilliant, Far Better’ than Paper Money; Tesla Isn’t Jumping in Just Yet

Tesla Says Plant Worker Injuries Stayed Flat In 2018 Amid Production ‘Hell’

Tesla’s push to more than double production of its electric vehicles last year wasn’t pretty; in fact CEO Elon Musk said it would be “hell.” In 2018 the injury rate at its main assembly plant stayed flat as the company expanded safety procedures and contended with news stories that highlighted worker injuries and questioned the thoroughness of its injury reporting practices……….

Source: Tesla Says Plant Worker Injuries Stayed Flat In 2018 Amid Production ‘Hell’

Tesla breaks ground on Shanghai factory which will product Model 3 EVs for China — TechCrunch

Tesla CEO Elon Musk has confirmed that the company’s first overseas factory in Shanghai will focus on producing Model 3 vehicles for the Chinese market only. Musk is currently in China to break ground on the new factory today, which is being developed in partnership with the Shanghai government — an ally that is likely to…

via Tesla breaks ground on Shanghai factory which will product Model 3 EVs for China — TechCrunch

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