Tesla is looking at its best sales quarter ever

Argus Research analyst Bill Selesky said he had expected deliveries of around 450,000 vehicles for the quarter, so “we have some upside to our second-quarter earnings forecast due to strong demand.”

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In addition, price discounts during the second quarter were likely “fairly minimal,” Selesky said.

That would contrast with the heavier discounts that Tesla offered in the first quarter, especially in China as it sought to gain market share and amid price discounts from rivals. It suggests that “price wars” among EV makers might be fading.

“We see further upside in the shares over the next 12 months and believe the likelihood of the company hitting its production target of 1.8 million units is now a likely more than ever,” based on first-half results to date, Selesky said.

Analysts polled by FactSet expect Tesla to report second-quarter sales of $24.32 billion, which would compare with second-quarter 2022 sales of $16.9 billion and match the high-water sales mark hit in fourth quarter.

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The analysts are calling for adjusted earnings of 79 cents a share for the quarter, which would compare with second-quarter 2022 adjusted earnings of 76 cents a share.

While competition in the EV space will accelerate in the short-term, Tesla will continue to prove that it is “the industry leader and will be for a very long time,” Selesky said.

Another positive is Tesla’s falling debt level, said Brian Mulberry, a portfolio manager with Zacks Investment Management. As of March, Tesla’s net long-term debt and finance leases totaled $1.27 billion, down from $1.6 billion at the end of 2022, Mulberry said.

“Low leverage provides the firm with the financial flexibility to tap into growth opportunities,” the fund manager said.

That’s not to say all will be completely smooth sailing for Tesla.

Risks that Zachs Investment is tracking include increasing research and development spending and capital expenses, as well as rising competition, Mulberry said.

Regarding expenses, the rising trend is expected to continue as the company aims to boost capacity, ramp up battery production, and enhance the Supercharger infrastructure, Mulberry said.

Tesla is fresh from inking deals with several auto makers, including Ford Motor Co.
F,
+0.92%
and General Motors Co.
GM,
+1.63%,
in which the Supercharger network, clusters of Tesla’s fast-charging ports usually off major highways, will be open to the other companies’ EV owners.

“We expect R&D costs to flare up roughly 26% this year, which is likely to clip margins. The company itself acknowledges that its near-term operating margin will be under pressure,” Mulberry said.

In terms of rising competition, Mulberry pointed out that as legacy auto makers and startups such as Rivian Automotive Inc.
RIVN,
-3.14%
offer more EVs, “Tesla is the only one with share to lose. All other players are gaining market share at its expense.”

“The company’s dominant market position is likely to become thinner thanks to stiff competition,” and there are also concerns in the Chinese market, with plenty of home-grown players like NIO
NIO,
+0.93%,
XPeng
XPEV,
+0.90%
and Li Auto Inc.
LI,
-0.12%,
among others, he said.

“Chinese players are seeing strong growth in their home turf and are getting ready to expand in international markets, mainly Europe and other Asian countries.”

Tesla has scheduled a call with analysts after the results. The call will be webcast.

The stock has gained 117% so far this year, compared with gains of around 15% for the S&P 500 index.
SPX,
+0.89%